Back in the 1980s many people expected Japan’s economy to overtake America’s. The world would see a new superpower. Today we hear the same said of China. Its GDP will be the world’s biggest and China will challenge the US for world leadership.
China’s GDP may indeed make it to number one, but not GDP per capita, a more meaningful measure of a country’s economy. Even if the US stood still up to 2050, China would need to raise per capita GDP by around 6 per cent a year to go from $10,000 to $60,000. That won’t happen.
But even if China’s GDP overtakes America’s, like Japan earlier, it may not be able to sustain a lead. And being a superpower requires sustainable economic power. This decade may see China peak.
There are four challenges China must overcome if it is to defy this pessimistic prognostication. The first two are the well-known problems of debt and demographics: China’s debt is around 300 per cent of GDP and since 2008, total factor productivity has been falling. Even at the best of times, reducing debt while favouring a less productive and largely unreformed state-owned sector is a difficult task.
China’s enormous population, hitherto a strength, is fast becoming a liability. Already the workforce is shrinking. Last years census is expected to report the first decline in overall population in 50 years. More relevant is the rapidly ageing population. As a result of the single child policy, the young carry the burden of “4-2-1” – looking after two parents and four grandparents. Very considerable resources will have to be redirected from areas which might promote Beijing’s rise as a superpower to buttressing a currently inadequate social security net.
Another demographic worry is a surplus of young males unable find female partners, the result of a cultural preference for sons combining with selective abortion. Now numbering perhaps 25 million, that figure could rise to as high as 40 million. They will be the poorer and less well educated, hardly a recipe for social stability.
Less spoken of is a looming water crisis in northern China. 12 provinces suffer from water scarcity or acute water scarcity, as defined internationally. They contain nearly half of China’s population, agriculture, industry and power generation. In one 20 year period, 28,000 rivers have disappeared. Aquifers are being overstretched. Climate change will only exacerbate shortages, even as it brings floods. Desalination and water transfers cannot make up a shortfall, China desperately needs a fast and vast reform of agriculture, with a swift move from traditional to hi-tech industries and a service economy, as well as enormous social disruption. This is a challenge for any system, but it will be an even greater one for a government which fears popular unrest to the extent that it spends more on domestic surveillance and control than it does on its military.
A further challenge for China is the stark lack of an educated work force. This comes as a surprise to many, given that over eight million university students graduate every year. American academic Scott Rozelle has shown that no country has escaped the so-called “middle income trap” when less than 60 per cent of its workers have not finished secondary education. In China, that figure is 30 per cent.
This is compounded by the number of China’s children who live in the countryside – roughly 70 per cent – where education is under resourced and poor diet and health harm children’s concentration. Far too many infants are not played with in their formative early years and miss out as a result. The result is an inability to learn how to learn, meaning that remedial and vocational education is not effective. A modern economy requires nimble workers and too many in China are unable to meet that standard.
The Chinese Communist Party may hope that innovation can cut the Gordian knot. It might. But it is also likely to increase existing inequality between the highly educated and the many migrant workers unable to learn new skills. This might lead to social instability. Innovation itself may be hampered by restrictions on the free flow of information and on the freedom to be iconoclastic. The Party’s model of governance permits neither.
Ten feet tall? More likely six.