19 August 2020

Which Way the Dragon? Sharpening Allied Perceptions of China’s Strategic Trajectory

This well-written, pathbreaking analysis is unrivaled in its timeliness, relevance, and quality! Strongly suggest reading the full report with your full attention if you possibly can. At very least, don’t miss the key excerpts below…

Ross BabbageJack BianchiJulian SnelderToshi YoshiharaAaron Friedberg and Nadège Rolland, Which Way the Dragon? Sharpening Allied Perceptions of China’s Strategic Trajectory, Future Warfare & Concepts Series (Washington, DC: Center for Strategic & Budgetary Assessments, 6 August 2020).

Given the rapid pace of change throughout Asia in recent decades, assessing China’s longer-term trajectory – and that of the Indo-Pacific region as a whole – represents a huge challenge for defense and security planners. Attempts to predict China’s strategic posture 15 to 30 years from now are hampered by a far more volatile security environment than that which governed the Cold War era. Yet in spite of the many strategic dislocations of the 21st century, most Western policymakers continue to rely upon the periodic strategic assessment principles regarding China that were practiced during the relatively stable late 20th century. The resulting policies are frequently and necessarily revised in the face of contemporary economic, political, and even epidemiological disruptions.

In Which Way the Dragon?, CSBA Nonresident Fellow Ross Babbage and colleagues argue for a new, scenario-based approach to defense and security planning in the Indo-Pacific. Drawing upon expert analysis of current conditions, three to four overarching scenarios for China should be considered as potential guideposts over the next 15 years. Each outcome would include a series of lead indicators, allowing analysts to determine which future scenario China is headed towards, prepare for potential alternatives in advance, and make adjustments to strategies, operational concepts, and military and security systems when necessary. The end result should markedly reduce the uncertainties about the strategic environment in the 2035 timeframe and provide greatly improved foundations for confident decisions on security policy and capability development. In short, this approach offers a superior way of addressing the security challenges faced by the Western allies and their security partners in the Indo-Pacific.


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The primary conclusions of this report are:

  1. China’s current strategic situation is characterized by multiple instabilities and uncertainties. While it is possible that China will continue on its current trajectory till 2035, it is more likely that there will be significant departures. The United States and its close allies need to be prepared for major changes and to have thought through how best to manage such situations well in advance.
  2. The assumption made by many in the West that the rapid rate of economic growth that China has experienced during the last three decades will be maintained during the

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2020s is possible but very unlikely. China’s rate of GDP growth has already halved since 2007 and continues to slow. Productivity levels are also falling along with international competitiveness in many sectors. National debt is very high and the budgetary burdens of a rapidly aging population are increasing. In the face of these challenges as well as biosecurity and other pressures Xi Jinping’s instinct is to clamp down harder on information flows, further tighten party control, increase the centralization of power, and work hard to maintain a sense of normality. Important consequences of this approach are to further constrain economic dynamism and increase the unpredictability of China’s trajectory to 2035.

  1. The defense of Taiwan and the integrity of the U.S. and allied positions on the first island chain in the Western Pacific will continue to be inseparable and mutually reinforcing. Measures to harden the frontline states, including Japan, Taiwan, and the Philippines will not only complicate the PLA’s campaigns plans, but also compel Beijing to stay fixated on local contingencies at the expense of its extra-regional ambitions.
  2. The actions or inactions of the United States and its allies will have a substantial influence on the Chinese regime’s behavior during coming decades, particularly China’s actions beyond its borders. There are strong incentives for the Western allies and their partners to consult more extensively on the challenges posed by the Chinese Communist regime and the most appropriate strategies and operational plans.
  3. The habit of the Western allies of basing their defense planning and priorities on periodic strategic reviews which are maintained as guide-posts for several years is inadequate for the dynamic situation in the Indo-Pacific. Confident security and defense planning require a different approach.
  4. The Western allies need a planning system that can accommodate marked changes in China’s trajectory. The need is for a mechanism that can detect and assess strategic changes in China promptly and link them directly to rapidly-paced Western countermeasures. Devising and implementing such an alert and agile system is a primary ‘front-end’ challenge for allied defense and security planning.
  5. By defining a set of representative scenarios, a firm foundation can be provided for making logical capability choices in a progressive manner through the fifteen years of a defense planning window. The scenarios and the accompanying lead indicator and monitoring systems should ensure that initial defense capability decisions are well-matched to China’s trajectory. At an early stage in the process officials can analyze in some depth the most important capabilities and operational concepts that should be put in place if China looks to be heading for a particular scenario outcome in 2035.
  6. Six key variables will largely determine the shape of China’s strategic future:
  • The power, performance, and durability of the Chinese Communist Party regime.

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  • The economic, technological, and corporate progress of the country.
  • The extent to which China’s modernized military is employed aggressively beyond the nation’s borders.
  • The level of international cooperation or resistance that confronts China.
  • Whether the Chinese regime seeks to rally the country by adopting highly nationalistic rhetoric and international stances.
  • The extent to which the Chinese regime moves to expand its international political, economic and military footprint in key parts of the Indo-Pacific region and beyond.
  1. This research generated four consolidated scenarios that, as a set, effectively represent China’s future scenario space:
  • Xi Jinping’s Dream
  • Muddling Through
  • Nationalist Drive
  • Macro-Singapore
  1. The type of scenario-driven planning and capability development methodology described in this report is not intended to be a set and forget approach. A process of this type should be adequate to guide priorities for defense investment for the first three to five years and should then be repeated.
  2. There would be value in using competitive analytical processes to identify one or more strategic or operational concepts that could change the game in the Indo-Pacific in the same way that the assault breaker and the follow-on forces attack concepts changed the deterrence and defensive balance in Europe in the 1980s. Innovative possibilities such as these deserve special attention because if experiments and tests verify that they would be effective, they may become strong drivers of the choices for development and acquisition across all credible scenarios.
  3. Almost all credible futures for China pose challenges for the United States and its allies that are multi-disciplinary. Effective Western actions to influence, coerce or counter Beijing will require coordinated actions across government, across nations and, in many cases, across the broader Western alliance. Activating, energizing, directing and coordinating such complex operations will be a major challenge for all parties, especially for the United States and its close allies. It will, however, be essential for success. Current mechanisms for consultation, coordinated planning and combined action may be suboptimal for the current situation and warrant careful review.

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  1. If the United States and its close Indo-Pacific allies closely coordinate their planning and operations they have the potential to actively shape the future and, in many situations, strongly influence Beijing’s decision-making and medium- and longer-term trajectory. Options for shaping and channeling Beijing’s behavior deserve far greater research and policy attention.
  2. One of the biggest constraints on achieving success in these and related reforms may be the difficulties in adapting personnel cultures, bureaucratic systems and staff skill sets. These issues will need to be accorded high priority. Revised personnel, management, and operational systems will need to be developed and implemented in close partnership with the modernized systems for selecting, designing, testing and manufacturing new hardware and software. Exceptional leadership will be required.


The primary recommendations of this report are:

  1. The Western allies should give greater consideration to the prospect that China will depart from its current trajectory in coming years. The potential implications of these anticipated shifts in one or more domains could have profound strategic consequences. The allies should strive to develop a deeper understanding of potential changes and consider those they wish to encourage and those they wish to thwart.
  2. In order to deal with the multi-disciplinary challenges that are likely to be posed by the Chinese regime in coming decades, the Western allies and their security partners should critically review their current systems and processes for strategic assessment, developing strategy, and planning and managing rapidly-paced operations across multiple agencies and non-government entities.
  3. Allied defense and security organizations should avoid the use of single-scenario analyses when considering major defense investments for future operations in the Indo-Pacific theater.
  4. Allied defense organizations should trial a process of scenario development and continuous lead indicator tracking. This process should provide clear guidance on the region’s security trajectory; permit early consideration of alternative strategy, operational concept, and capability mixes; and facilitate timely decision-making.
  5. The United States and its allies should use small competitive teams to sharpen the quality and timeliness of some strategic assessment and capability development processes.
  6. The Western allies and their partners should consult more extensively on the challenges posed by the Chinese Communist regime and the most appropriate strategies and operational plans to deter and, if necessary, confront Beijing. Current mechanisms

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for consultation, coordinated planning, and combined action may be suboptimal for the current situation and warrant careful review.

  1. In working to institute such reforms, an early priority should be a substantial strengthening of personnel cultures, organizational systems, and multi-disciplinary skill-sets. Exceptional leadership will be needed.
  2. There would be value in using competitive analytical processes to identify one or more strategic or operational concepts that could “change the game” in the Indo-Pacific in the same way that the assault breaker and follow-on forces attack concepts changed the deterrence and defensive balance in Europe in the 1980s. Innovative possibilities such as these deserve special attention.
  3. The United States and its allies should consider the potential impact of the reforms proposed in this report to strengthen Western resilience and endurance, particularly in the event of an extended period of tension or conflict.


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Pre-determined Elements of Consolidated Scenarios 

Pre-determined Element #1: Geography

Geography plays a foundational role in Chinese strategic perceptions. While the country is of comparable size to the United States, it has few of the natural protections enjoyed by North America. China shares land borders with 15 countries, and it has unresolved border disputes with several of them. Over the millennia many Chinese regimes have been forced to fight for their survival against powerful invaders that swept across the Eurasian plains or assaulted across the eastern seaboard. The country’s few geographical barriers and natural vulnerabilities have helped to foster a strong civilizational identity and deep nationalism.

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Pre-determined Element #2: Demography

Demography is a relatively stable variable in China’s future because most of the people who will be in the country in 2035 have already been born. This means that short of a huge catastrophe, there is little that the Chinese Communist regime can do to significantly alter the demographic trajectory of the country this side of 2050. The demographic die is cast.

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Driving Force #2. The economic, technological, and corporate progress of the country.

In Appendix D, Julian Snelder argues that there are many uncertainties regarding China’s economic future.

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China’s economy has certainly grown strongly since the 1980s, but in recent years trouble has been brewing. The official growth rate more than halved from 13 percent in 2007 to about 6 percent by the end of 2019 and the World Bank,18 the Australian Reserve Bank,19 and even the Chinese Premier20 were all predicting a further slowing. Moreover, many leading economists believe that China’s official figures have long been falsified21 and that the actual growth rate in January 2020 was in the 4-5 percent range or even lower.22 On top of this declining trend, official figures indicate that the virus shrank the Chinese economy by 6.8 percent during the first quarter of 202023—although credible reports indicate that the slump has been larger.24 In the medium and longer term, the Australian Reserve Bank has stated that China’s growth rate will likely be around 3 percent by 2030.25 Others are predicting 1-1.5 percent by 2040.26 These figures would mean that in two decades’ time China’s economy would still be very large, but it would be running at about the same pace as that of the United States, and possibly slower.

Another dimension of China’s weakening economy is that the country’s debt now exceeds 300 percent of GDP.27 National debt has been growing at a rate exceeding that of any other country in peacetime. Measures to service and reduce this debt are likely to further constrain economic growth.

In efforts to maintain economic momentum and political stability, Beijing has launched a succession of stimulus packages in recent years. But much of this spending has been unproductive.

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An interim conclusion is that the party’s assertion that the Chinese economy continues an inexorable rise to dominate the world is not supported by the facts. The Chinese economy may be approaching the size of the U.S. economy but it now has serious structural and operational problems and its future trajectory is very uncertain.

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Driving Force #3. The extent to which China’s modernized military is employed aggressively beyond China’s borders and the level of international cooperation or resistance that confronts China.

Xi Jinping has made it clear that powerful ground, air, naval, and rocket forces are key instruments for advancing China’s national interests. As Toshi Yoshihara argues in Appendix E, military power also reinforces China’s rising status in international politics. Xi has pledged to build a potent military in a three-step process. First, the PLA will have completed the mechanization process and made substantial strides in “informationization” by 2020. Second, the PLA will have completed its modernization by 2035. Then, third, the PLA will be “fully transformed into world-class forces” by the mid-century.

The first strategic driver for the regime in the military domain is to build strategic leverage over the future of Taiwan. On the one hand, if Taiwan’s future status were resolved it would free China from a high-intensity conflict that could involve the United States, Japan, and other third parties. Alternatively, if Taiwan’s status remains unresolved it could continue to fixate Beijing’s attention and consume China’s resources as it prepares for a potential offshore military campaign.

The second key determinant of China’s military investments is the health of the U.S.-led alliance architecture in Asia. If the alliance system is in disarray it would be vulnerable to subversion and attack. Alternatively, if Beijing could see an overlapping network of alliance relationships coalescing around the Chinese periphery, the PLA’s strategic leverage could be severely constrained.

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Driving Force #5. The extent to which the Chinese regime expands its international political, economic and military footprint in key parts of the Indo-Pacific region and beyond.  

Aaron Friedberg and Nadège Rolland argue in Appendix F that there are two primary forces that will determine whether Beijing pushes hard to expand its political, economic, and military footprints internationally. The first will be the rate of growth in China’s “comprehensive national power” and the manner in which the nation’s leaders define its interests and objectives. The second driving force will be the capabilities of a nascent coalition of other nations and the extent to which they perceive the necessity, and have the ability, either to accommodate China or to work together to counter the potentially harmful effects of its rise.

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Formal Forecasting Methods

There is a great variety of formal forecasting methods, including trend projection, curve fitting, cycle analysis, correlation analysis, historical analogy, theory derivation, and formal modeling.47 In trend projection, existing trends are simply carried forward into the future, but this is usually an overly simplistic method, especially over the long term. Present trends rarely continue indefinitely and this type of analysis ignores potential changes in the underlying drivers of these trends. Curve fitting is similar to trend projection except that instead of linear projections based on present rates of change, current trends are fitted—particularly through statistical analysis—to nonlinear curves that may better depict future developments.48 For example, many forecasts of China’s economic growth and related market variables now apply an S-shaped curve, indicating an expected slowing growth rate after recent decades of rapid growth.49


47 Rescher identifies several of these methods and his comprehensive treatment of formal predictive methods includes an extensive list of formal predictive methods and their variants. Rescher, 97-112.

48 Rescher, 99.

49 For examples, see: Andrew Erickson and Gabe Collins, “China’s S-Shaped Threat,” The Diplomat, September 6, 2011, available at https://thediplomat.com/2011/09/chinas-s-shaped-threat/ and Tian Wu, Hongmei Zhao, and Xunmin Ou, “Vehicle Ownership Analysis Based on GDP per Capita in China: 1963–2050,” Sustainability 2014, 6, 4877-4899, available at https://www.mdpi.com/2071-1050/6/8/4877.

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Productivity is already declining quite rapidly. China’s growth is extensive, reliant on ever-increasing amounts of capital and labour. Total factor productivity (TFP), from which long-term growth must be derived, has been timid. This is especially problematic because demographic trends are now adverse. Xi inherited a nation at “peak toil,” with the working age population reaching its zenith in 2015. Strikingly, the flow of school leavers (i.e., new entrants to the workforce) will halve by 2030. Even earlier, in 2028 China’s total population

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will peak. Chinese leaders face the imminent prospect of diminishing raw inputs to national power.

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The scenarios above lead to two hypotheses that carry implications for the United States and its close allies. The first hypothesis is that China’s strategic success on the global stage rests first on a favorable balance of power in its own backyard. Or, to put it differently, a security surplus along its immediate periphery is a precondition for obtaining Beijing’s aims beyond the Western Pacific at acceptable risk and cost. Beijing must take Taiwan and dominate local

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terrain, like the South China Sea, before it can devote resources on a sufficiently large scale to fulfill a wider range of extra-regional missions. While China can clearly project power and influence events across the Indian Ocean region and simultaneously develop a powerful deterrent force against Taiwan and other local flashpoints, as it has over the past decade, contingencies closer to home clearly impose a handicap on Beijing. China’s strategy should thus be understood in sequential terms: Beijing must establish the basis for primacy in Asia before turning to grander ambitions on the world stage. And the path to preeminence runs through Taiwan.

The second hypothesis is that there will be continuing tension between China’s immediate priorities over Taiwan and its longer-term ambitions in extra-regional theaters. Beijing’s preoccupation with the island continues to tie down a sizable proportion of resources that it would otherwise prefer to use for other missions farther afield. If Taiwan stays out of China’s hands, then the PLA would need to sustain investments in both its general-purpose force and its contingency-specific force in coming years. Whether this dual structure is sustainable and whether China can go global, despite the resources that Taiwan and other local disputes continue to consume, are critical uncertainties for the Chinese leadership. If the island falls to the mainland and third parties do not contest such a union, then, at a minimum, the uncertainties lift, giving the PLA the choice to shift decisively toward a global force posture.

If these two hypotheses are correct, then the close allies must exploit and exacerbate China’s global-local dilemmas to the maximum extent possible. First, the fate of Taiwan will not only determine Asia’s power balance, but it will also influence Chinese decisions and options as Beijing extends its influence beyond the Western Pacific. As such, the allies must not treat Taiwan as a liability. Taiwan is not an impediment to great power amity between China and the United States. Rather, the allies should view the island as a bulwark against Beijing’s regional and global ambitions. Placing Taiwan in the context of a larger and longer-term rivalry with China is essential to understanding the nature of the cross-strait stalemate and the allied role in the standoff.

Second, the defense of Taiwan and the integrity of the U.S. and allied positions on the first island chain are inseparable. In fact, they are mutually reinforcing. Allied cooperation on Japanese and Filipino territories would strengthen cross-strait deterrence while making a Chinese campaign very costly should war break out. A strong Taiwan that can effectively resist Chinese coercion and aggression reinforces the favorable military balance that the United States and its allies on the first island chain have enjoyed for decades. Conversely, the fracturing of alliances on the island chain would make defense of Taiwan far more difficult while the loss of Taiwan would confer to China a commanding geopolitical position over Japan, the Philippines, and the South China Sea.

Third, the allies must force costlier choices on China. Measures to harden the frontline states, including Japan, Taiwan, and the Philippines, not only complicate the PLA’s campaigns plans, but also compel Beijing to stay fixated on local contingencies at the

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expense of its extra-regional ambitions. To be sure, China has been able to go global even as it has grown much stronger in Asia. But, the allies should nevertheless seek to sharpen the opportunity costs for China. Otherwise, Beijing would be afforded the strategic space to continue its ascent resistance free and this permissive environment would open for China more possibilities in Asia and beyond. Taking a stand now to convince China that it cannot rise unconstrained in Asia would decrease Beijing’s confidence in its ability to fulfill its global objectives. Failure to act sooner would only postpone the day of reckoning while increasing the costs of resistance later.

Fourth, the scenarios show that the United States and its allies must devote substantial and sustained resources to defend the first island chain. Efforts to impose costs on the PLA, enhance resilience against China’s first strike or first-mover advantage, maintain offensive options, apply collective pressure on China, and defend Taiwan effectively will require close coordination and steady progress on multiple fronts. Conversely, the scenarios show that a loss of momentum and benign neglect could inflict serious harm on allied cohesion and unity of effort. Worse still, wishful thinking by the frontline states could prove toxic as they fall back on the hope that the United States would ultimately intervene. It would simply invite China to shatter those illusions.

Fifth, at the campaign level, the task before the close allies is as daunting as it is multifaceted. Unlike a decade ago, a conflict over Taiwan likely will not be limited to the confines of the first island chain and will involve several sub-theaters simultaneously as soon as the first shots are fired. In addition to Chinese deep strikes against targets located as far as the second island chain, the PLA could launch long-range precision fires and air and naval sorties from the manmade Spratly bases toward the Sulu and Philippine Seas and the Bay of Bengal. Those manmade islands would also host a dense network of overlapping anti-access bubbles, creating a formidable bastion in the heart of the South China Sea. At the same time, several surface action groups and nuclear attack submarines could prowl the far seas as raiders to disrupt allied operations. It is worth noting that Western planners, with few exceptions, had not anticipated the multi-theater and multi-vector character of the PLA at the turn of the new century, demonstrating how far the Chinese have come.

Sixth, should deterrence fail, the allies must impose costs on China with their own antiaccess capabilities in the near seas while seeking to wage and win a war at sea against Chinese blue-water forces across the Indian Ocean littorals. Fighting a two-theater campaign of this kind would require the allies to develop competencies that have atrophied since the end of the Cold War. They would have to hone skills in a contest for sea control in the open ocean. They would also need to rediscover tactics and doctrine for close-in sea denial operations, such as aerial and undersea offensive mine warfare. Long-accustomed to maritime supremacy and second-rate military powers that posed little threat to that dominance since the Soviet Union’s collapse, the allies will have to undergo a shift in mentality as much as a change in posture within a far more competitive environment. It would be prudent to devise a division of labor among the allies. The frontline states should carry

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heavier burdens along China’s periphery while the United States and other allies and partners, including Australia and India, systematically target China’s seagoing forces in the Indian Ocean.

As the allies prepare for this future, they need to be strategically opportunistic. China’s defense burdens closer to home and the proliferation of global interests and associated constabulary missions suggest that Beijing may be vulnerable to imperial overstretch. The allies need to be alert to signs of overextension and devise strategies to exacerbate or manipulate such overreach. As made clear above, it is within the power of the close allies to force costlier choices on China. Keeping Beijing fixated on more immediate aims that, if unachieved, would preclude it from obtaining its long-term goals is one way to impose opportunity costs. Or, to frame this proposition in Xi’s terms, it behooves the close allies to keep the China Dream—and the intermediate objectives necessary to reach that Dream—unfulfilled for as long as possible. The more time that the allies buy in this competitive process, the better chances they will have to bend the terms of the competition in their favor.

Finally, as the PLA’s force composition alters over time, Beijing’s risk calculus will change alongside the material metamorphosis. For example, the PLAN’s modernization appears to be giving birth to a Chinese version of Imperial Germany’s High Seas Fleet. This “lumpy capital” is a vulnerability ripe for exploitation. For the close allies, holding at risk the tools that China values most would furnish them the leverage to compete effectively in this longterm rivalry and, should deterrence fail, compel Beijing’s will.

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[Geo-Strategic Scenario 1: China Balanced]

Faced with effective counterpressure along its southern borders and maritime frontiers, Beijing turns inland and westward, seeking to consolidate and expand its relations with Russia, the Central Asian republics, and the mostly small, poor states along Russia’s western perimeter. In what is, in effect, a new Cold War, Eurasia is divided into an authoritarian, continental coalition centered on China and a grouping made up primarily of maritime democracies, led by the United States. The global economy too becomes increasingly segmented. Free trade agreements link the EU, the U.S., Japan, South Korea, Australia, and others into a unit made up almost entirely of democratic countries that together comprise over 60 percent of world GDP, while China seeks to expand its economic relations with emerging economies, especially those along the Belt and Road.