Friday, April 18, 2014
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Is China Overtaking America?

CAMBRIDGE – The twenty-first 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. In 2010, 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 2020’s, 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. And 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 its leader, displacing Germany at the top. But 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. Whether China can develop a formula to manage an expanding urban middle class, regional inequality, and resentment among ethnic minorities remains to be seen. The basic point is that no one, including the Chinese, knows how China’s political future will affect its economic growth.

Some analysts argue that China aims to challenge America’s position as the world’s dominant power. Even if this were an accurate assessment of China’s intentions (and even Chinese cannot know the views of future generations), it is doubtful that China will have the military capability to make this possible. To be sure, Chinese military expenditures, up more than 12% this year, have been growing even more rapidly than its economy. But China’s leaders will have to contend with other countries’ reactions, as well as with the constraints implied by the need for external markets and resources in order to meet their economic-growth objectives.

A Chinese military posture that is too aggressive could produce a countervailing coalition among its neighbors, thereby weakening China’s hard and soft power. In 2010, for example, as China became more assertive in its foreign policy toward its neighbors, its relations with India, Japan, and South Korea suffered. As a result, China will find it more difficult to exclude the US from Asia’s security arrangements.

China’s size and high rate of economic growth will almost certainly increase its relative strength vis-à-vis the US in the coming decades. This will certainly bring the Chinese closer to the US in terms of power resources, but China will not necessarily surpass the US as the most powerful country.

Even if China suffers no major domestic political setback, many current projections based on GDP growth alone are too one-dimensional: they ignore US military and soft-power advantages, as well as China’s geopolitical disadvantages in the internal Asian balance of power. My own estimate is that among the range of possible futures, the more likely scenarios are those in which China gives the US a run for its money, but does not surpass it in overall power in the first half of this century.

Most importantly, the US and China should avoid developing exaggerated fears of each other’s capacities and intentions. The expectation of conflict can itself become a cause of conflict. In reality, China and the US do not have deeply rooted conflicting interests. Both countries, along with others, have much more to gain from cooperation.

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