Is China overtaking America?

Editorial, Normal

The National, Wednesday, May 11, 2011

THE 21st Century is witnessing Asia’s return to what might be considered its historical proportions of the world’s population and economy.
In 1800, Asia represented more than half of global population and output.
By 1900, it represented only 20% of world output – not because something bad happened in Asia, but rather because the Industrial Revolution had transformed Europe and North America into the world’s workshop.
Asia’s recovery began with Japan, then moved to South Korea and on to Southeast Asia, beginning with Singapore and Malaysia.
Now the recovery is focused on China, and increasingly involves India, lifting hundreds of millions of people out of poverty in the process.
This change, however, is also creating anxieties about shifting power relations among states.
Last year, China passed Japan to become the world’s second largest economy. Indeed, the investment bank Goldman Sachs expects the Chinese economy’s total size to surpass that of the United States by 2027.
But, even if overall Chinese GDP reaches parity with that of the US in the 2020s, the two economies will not be equal in composition.
China would still have a vast underdeveloped countryside.
Assuming 6% Chinese GDP growth and only 2% US growth after 2030, China would not equal the US in terms of per capita income – a better measure of an economy’s sophistication – until sometime near the second half of the century.
Moreover, linear projections of economic growth trends can be misleading.
Emerging countries tend to benefit from imported technologies in the early stages of economic takeoff, but their growth rates generally slow as they reach higher levels of development.
The Chinese economy faces serious obstacles to sustainable rapid growth, owing to inefficient state-owned enterprises, growing inequality, massive internal migration, an inadequate social safety net, corruption and inadequate institutions, all of which could foster political instability.
China’s north and east have outpaced its south and west.
Almost alone among developing countries, China is aging extraordinarily fast.
By 2030, China will have more elderly dependents than children.
Some Chinese demographers worry that the country will get old before getting rich.
During the past decade, China moved from being the world’s ninth largest exporter to displacing Germany at the top.
However,  China’s export-led development model will need to be adjusted as global trade and financial balances become more contentious.
Indeed, China’s 12th five-year plan is aimed at reducing dependence on exports and boosting domestic demand. Will it work?
China’s authoritarian political system has thus far shown an impressive capacity to achieve specific targets, for example, staging a successful Olympic Games, building high-speed rail projects, or even stimulating the economy to recover from the global financial crisis.
Whether China can maintain this capability over the longer term is a mystery to outsiders and Chinese leaders themselves.
Unlike India, which was born with a democratic constitution, China has not yet found a way to channel the demands for political participation (if not democracy) that tend to accompany rising per capita income.
Communist ideology is long gone, so the legitimacy of the ruling party depends on economic growth and ethnic Han nationalism. – Project Syndicate


*Joseph S. Nye, Jr. is a professor at Harvard and the author of The Future of Power