Wednesday, January 02, 2019

Is the China Century Over Already?

China's growth could slow to a crawl.

This article argues that China is not necessarily destined to become the dominant economic power any more than the Soviet Union or Japan were able to surpass America:

Do not extrapolate from the recent past. China has had a hugely impressive four decades. After their triumph in the cold war, both the west and the cause of liberal democracy have stumbled. Should we conclude that an autocratic China is sure to become the world’s dominant power in the next few decades? My answer is: no. That is a possible future, not a certain one.

I'd add the booms of predicting German or European Union triumphs.

I have long rejected arguments that  assumed past performance was a guide that extends with no end. China has made tremendous progress but has not discovered a means to sustain that growth rate from a very low level forever.

It is possible that China could pass us by in the middle of this century. Although China's stumbling now could stop that rise.

But even if China does pass us by in mid-century, the end of the century could see America reclaim the crown. I base this on population trends that will no longer allow China the easy method of putting peasants in factories:

Until now, much of China's growth has been based on the "Lewis turning point" that reflects direct inputs of new workers rather than more efficient use of existing workers. Once the direct input slows, wages rise and the comparative production advantage erodes. As I liked to say, take the most efficient peasant and take him from a farm and put him in the most inefficient factory and the GDP he produces goes up.

The years 2050 and 2100 may look very different from today where anybody who is anybody tries to predict when China takes over our top spot on the globe.

And I'll add that as long as we are trying to figure out possible futures of China, I'll ask why we have to choose only one?

Why the author had to digress with a pointless insult against Trump is beyond me, I'll note. It was just one sentence but it tainted the analysis by adding politics when none was needed.

UPDATE: China's economy is running into problems that past solutions can no longer solve:

In December, for the first time since February 2016, Chinese factory activity declined. That alone was enough to cause stock markets worldwide to continue their sharp declines because the factory slowdown was more evidence that the entire Chinese economy was hitting a rough patch. It was also confirmed that Chinese GDP growth in 2018 was 6.5 percent and many economic indicators continue declining while those in the United States are growing. This is a reminder that the current trade war with the United States favors the Americans for many reasons that Chinese leaders cannot ignore. China has hit economic slumps since the 1990s, usually the result of economic problems in the West. But now the cause is China because of a lot of bad decisions that are now catching up with the Chinese leadership that made all the mistakes in the first place. Years of tolerating corruption and ignoring the growth of bad loans (that were at the basis of much corruption) means that just borrowing more money to give the economy a boost will not work. A sharper decline in Chinese economic activity would have worldwide impact because China is a major trading nation and a major customer for raw materials, semi-finished goods and some high tech items. Fewer orders from Chinese firms has major impact on national economies worldwide. That’s why global financial markets have been in decline for months and prospects of a turnaround are not good right now.

Do read it all.

Will China recover despite the problems that have accumulated? Or will the world decouple from such reliance on trade with China?