Bret Stephens is a CL. He thinks economic growth is tied inextricably to a small state. As a result, he thinks high levels of Chinese growth are logically impossible, and he has been predicting the decline of China for years. He is now taking China’s covid problems and population issues as evidence that he was right all along. Was he?
In this post, I will examine the rising or declining issue as it pertains to the Chinese economy. Tomorrow, the topic will be geopolitics.
China’s impressive growth rate over the past three decades was the result of several factors, including:
- A large, underemployed rural workforce that was willing to move to the cities and sacrifice current comforts for the hope of a better future;
- A relatively predictable and business-friendly government;
- Protectionist measures, including forced technology transfers, that were accepted by companies lured by the enormous Chinese market;
- Technological changes that made globalization more attractive to large corporations. and
- Huge investments in infrastructure.
Very little of this blueprint was original; you could say the same things about the UK and the US in the19th century, to say nothing of Japan, South Korea, and numerous other countries more recently. Two things make China stand out, however: its sheer size; and the fact that it had been a communist country. To make capitalism work in a nation that had demonized it for decades was a truly remarkable accomplishment.
The factors listed above can no longer be the catalyst for the rise of China. The demographic dividend has been spent. Xi has made it clear that he prefers stability and a state-driven economy to dynamism, creative destruction, and the creation of private power centers. The rest of the world now views China as an adversary and a potential predator, not just as a source of cheap goods. There are no technological changes on the horizon that make moving your plant to China more attractive, particularly after the government’s response to the virus. Finally, there are only so many miles of highways and subway lines you can build without creating waste.
China does have the advantages of size, an enterprising people, and lots of money to invest. As a result, an actual decline is unlikely. What you are more likely to see is a degree of stagnation over the next decade or so. Stephens isn’t exactly wrong, but he isn’t exactly right, either.