The Chinese Century?

By Josef Goodman

History will return to normal. After a few centuries of hibernation, which gave rise to Europe and the United States in the 19th and 20th centuries, China is awaking from its slumber to reclaim the dominance of the first eighteen centuries of the Common Era. The People’s Republic strikes back.

The growing genre of books, from Stefan Halper’s The Beijing Consensus: How China’s Authoritarian Model Will Dominate the Twenty First Century to Martin Jacques’ When China Rules the World: The End of the Western World and the Birth of a New Global Order, suggest no less. The ubiquity of the “Made in China,” from every toy purchased for Christmas to every smart phone “we just can’t live without,” does not give the American consumer much confidence in the future of his economy. The deficit, bad schools and broken infrastructure add to the national anxiety. Afghanistan, that “Graveyard of Empires,” is a whirlpool sucking in American lives, money and resources. Afghanistan spat out the British and Soviets. Where are they now?

Parallel this with China. While the US suffers from a deficit in the double digits of trillions, the People’s Republic is growing at an annual rate GDP in double digits. One is the world’s largest debtor, the other the world’s largest creditor. While the US was squandering, China was saving. Goldman Sachs projects that China will surpass US GDP by 2027; some estimate even sooner. If the 20th century was the American Century, it’s all but certain that the 21st century will be the Chinese Century. The bald eagle must land and repair its wings. The panda is getting comfy and setting up shop.

So the prophets foretell. Yet, that crystal ball is a great deal murkier than claims of American defeatism and Chinese ascendancy submit. Just as it failed to color the globe in the 20th century, Red will not dominate the 21st century. This century will not belong to the Chinese.

A number of factors contribute to my lack of faith in the Chinese juggernaut, the most important of which is the structure of their economy. Over half of the Chinese economy is based on construction. The percentage of US GDP attributed to construction, meanwhile, hovers around 4-5%. The construction fervor has seen malls erected in months, buildings in days. One YouTube video shows the completion of a hotel in a mere 144 hours. Yet for the all the speed and efficiency, supply far outstrips demand. Enough office space has been built to house all 1.35 billion people in the country. Entire cities are assembled and left empty with no one but ghosts to inhabit.

Such mass construction has some, most notably James Chanos, President and Founder of Kynikos Associates, betting on a property bubble. Chanos has a history of risky gambles paying off. He short sold Enron Corporation, and sees a lot of the same factors that influenced his decision then in play in China.

Whether or not he profits from his short of the property market, Chanos speaks to a larger imbalance in the blueprint of the Chinese economy. China is not only the world’s largest construction zone, but has become the world’s sweatshop. Yet these two industries are very much industries of the past. “Made in China,” the nation’s motto, speaks to China’s growing manufacturing might. It would be a mistake, however, to equate dominance in manufacturing with economic supremacy. The economy of the 21st century will be driven less by the mass production of toys and microwaves, and more by the generation of ideas and the exploration and utilization of new technology. As David Brooks wrote in a recent opinion piece, “the nation with the most diverse creative hot spots will dominate the century.” The nation that produces the next Google and eBay will dominate the next hundred years. The laboratory and classroom, and not the factory, will win out and prevail in this highly competitive globalized world. The country that can attract the most human capital, the greatest talent, will claim the century.

At present, China does not meet this challenge. For all its gains in expanding post-secondary education and high investment in R&D, as its recent dispute with Google shows, China fears the very openness and innovation vital to succeed in the Information Age. It is for this exact reason that former prime minister of Singapore, Lee Kuan Yew, does not foresee China surpassing the US as the global superpower. A government that censors and stifles conversation, he says, cannot cultivate the fertile ground for the next Twitter or Facebook. A marketplace of limited, censored and controlled ideas will not attract the necessary talent and human capital to help Shanghai blossom into Silicon Valley.

This lack of economic liberty reflects the political reality. Thomas Friedman, another columnist for The New York Times, does not agree with James Chanos. He sees another gap emerging. “There has been a lot of buzz lately about investors ‘shorting’ China’s overheated real estate market, basically betting that it will go down. I say that’s peanuts. There is a much more interesting shorting opportunity in China today. It is truly ‘The Big Short,’ and that is betting that China can’t continue to grow at this pace indefinitely by only permitting its people to have economic liberty without political liberty.” There are hundreds of thousands of protests every year in China. Freedom House ranks it amongst the least free of all 192 countries. China’s imprisonment of Liu Xiaobo, the recipient of the Nobel Peace Prize, made clear to the world the regime’s already blatant contempt for basic civic rights. As China becomes richer and as Chinese GDP per capita grows, the billions will stand up and demand greater respect and enfranchisement. How the Communist Party deals with reform and the growing demands of the Chinese people will play a large role in determining the country’s trajectory.

Problems with the Chinese population are not limited to the political sphere. Of equal importance are China’s demographic trends. They are not encouraging. China’s “one-child” policy is central to the debate. Introduced in 1978 to alleviate the social, economic and environment conditions of the country, the program’s success in curbing population explosion is raising alarm of a population shortage.

With a total fertility rate of 1.79, below replacement level, China is expected to see its population peak at 2030. By 2050, one third of the population will be above 60 years of age while its population of 16 to 60 year-olds will drop from 990 million in 2016 to 870 million by 2050.

This spells disaster for China. An older population will not only be less productive, but will drain resources from the economic engine as the government spends more on healthcare and social welfare programs. India and the United States will see continued demographic growth over the next half-century. India, with a total fertility rate of 2.65, will surpass China as the largest country within decades. The United States, with high immigration rates and above replacement level growth, will grow to about 450 million by midcentury. Other countries, such as BRIC member Russia, are already suffering from catastrophic demographic implosion. Russia is experiencing negative population growth of 0.385%, a loss of close to a million people each year. Europe and Japan will also feel the weight of an older and greyer population. China isn’t in the best of company.

The problems for the People’s Republic of China multiply from hereon. A record of border disputes and conflicts with Vietnam and India has left the entire region looking nervously eastward to the United States to act as a counterweight. China’s environmental degradation, with new coal mines propping up each week, will compromise China’s source of natural resources and future growth. Of the twenty most polluted rivers in the world today, ten are in China.

None of this is to say, however, that the Chinese leadership is unaware or unprepared for the difficulties that lie ahead. Nor is this to say that the United States is immune from problems of its own or from relative decline in its status as sovereign of a unipolar world. Fareed Zakaria, in his The Post-Amercan World, is right to say that the penthouse of power is becoming more crowded.

The Pittsburgh G20 Summit of 2009 was monumental in ushering in a new world order, one in which regional powers will carry more weight onto the global stage. The United States will continue to dominate all aspects of international relations. It will do so by resorting less to its military arsenal and more to its economic and diplomatic options. It will have to forge a new Bretton Woods so that the system of the 20th century can survive and prosper within 21st century realities. If the United States can accomplish this, so that rising powers opt to play by the rules of the American system, rather than within a system of their own, the US will realize its role as the “indispensible nation.”

There is no need to fear a Chinese Century or a Sino-centric world. The American Century isn’t over yet.

Josef Goodman is a freshman in Morse College.

 

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