China is the current bogyman, the nation currently touted as
being the long-term replacement for America as the global hegemon. And one can
see why. It has a massive population of about 1.4 trillion, it has shown
astonishing economic growth over the past 30 years, the Chinese as a culture
are hard-working and entrepreneurial, the Chinese government has invested
heavily in educating its best and brightest in the best universities around the
world, and China has in recent years become increasingly assertive in world
affairs, especially in its own region. There is no question but that China is a
significant regional power in Asia.
At the moment China is not yet a superpower. Despite having
almost 5 times more people than the US, China’s GDP is still only about half
that of the US ($12+ trillion vs $19+ trillion in 2018). Despite its bluster,
its navy is currently no match for the US navy, or indeed even for the nearby Japanese
navy. Its army is large (approximately 2 million, with another half million in
reserves), but it lacks the transport or logistics system to reach much beyond
the mainland, and indeed most of its land army is devoted to maintaining
internal cohesion, at a substantial cost to its national budget. Its industrial capacity could not sustain a
major war. But if China were to continue to grow economically for another
decade or two at the rate it has been growing over the past three decades, it might
indeed become a superpower. That seems unlikely for several reasons.
First of all, China has a major geographic constraint. Its
economy depends on maritime trade to bring oil and other resources into the
country and to ship exports out. Bounded on its other sides by largely
impassible mountains and deserts, it needs the sea routes. But its access to
the China Sea is controlled by other nations like Japan and Taiwan and Vietnam
and even the US (Okinawa). That is why it is so focused on controlling the
first and second island chains. If these are in the hands of opponents its
access to the sea can be cut off and its economy is vulnerable. As China rises,
it is already prompting the formation of counterweight alliances with nations
like Japan and Australia and even India, and of course the US.
China is trying to build up a significant “blue water”
(ocean-going) navy, and has even taken to building aircraft carriers. But there
is far more to having an effective navy than just building the ships. One needs
to build the experience in handling naval strike groups, and that will take
decades, even with intensive training and exercises. Its opponents, especially
the US, Japan and Britain, already have centuries of experience as maritime
powers.
And by the way, that is probably why China undertook the
enormously expensive “Belt and Road” initiative, an attempt to build road and
rail links to the Middle East and Europe along the old silk road routes. But
even if successful, these cannot alone carry anywhere near the volume of trade
China needs to maintain its economy. The sea routes are still critically
important.
Second, its impressive GDP growth over the past 30 years
isn’t quite what it seems. It has been driven by a government focus on
providing jobs, largely funded by government loans, whether the jobs are needed
or not. The result has been a massive overbuilding of infrastructure,
especially in the wealthier coastal provinces, without regard to whether they
provide returns or not. For example China now has an estimated 64 million empty
apartments, many in brilliant new “ghost” cities with almost no inhabitants. As
a consequence its banks also have an enormous portfolio of nonperforming (ie,
bad) loans. So GDP growth is perhaps not a very good measure of what China has
actually achieved, and of the true health of the Chinese economy.
Third, to continue to grow its GDP and competitive economic
position much further, China will have to take steps to liberalize its system,
steps which would loosen the power of the Communist Party. Steps like replacing
the less efficient state-owned enterprises with more efficient privately-owned
enterprises, and replacing central planning with market signals for resource
allocation and pricing. But I doubt that the Party will loosen its grip, and in
that they may be wise. China, so large and with so many disparate ethnic groups,
always faces the threat of falling apart again, as it has done repeatedly
through history, and only the tight grip of the Party can probably hold it
together.
Finally, China faces a sharp demographic decline. It birth
rate has fallen below 1.7 children per couple, well below the replacement rate
of about 2.1 children per couple. Combined with the demographic problems that
the 36 year “one-child” policy produced, China will, as some demographers have
put it, “grow old before it grows wealthy”.
For those technically inclined, China is estimated to reach the “Lewis
turning point”, the point where surplus labor decreases to zero and as a
consequence labor costs start to rise sharply, around 2020-2030. Or put another
way, while there are currently about 5 young workers per retiree in China, by
2050 there will be only about 2 workers per retiree. This will have severe
social and political consequences.
So there is no question that China will be a major regional
player in Asia, and that we need to deal diplomatically with it as such, but it
seems a bit farfetched to see it as becoming a global superpower or replacing
America as a global hegemon in the next century or two.
Posts
