There is a fairly lively debate going on as to whether it is the growing strength or the emerging weaknesses of China that represent the greater threat to the existing world order. There are plausible arguments on both sides.
Here is my analysis of China’s strengths and weaknesses:
Strengths
- A pragmatic, resilient, confident population with a record of accomplishment that spans thousands of years.
- A government which, until recently, had somehow managed to graft capitalist institutions on an agrarian communist system and make it work. The magnitude of this accomplishment is breathtaking, particularly if you consider the condition of the country after the Cultural Revolution.
Weaknesses
- Due partly to the one-child policy and partly to industrialization and urbanization, China is facing a demographic time bomb that will make its low-wage industries less competitive over time.
- For the same reasons, the government will ultimately be compelled to create, and pay for, a real safety net in lieu of relying on local authorities and families to solve the problem.
- The political and economic systems are rife with glaring contradictions. The Communist Party no longer believes in Marxism; the state tries to encourage innovation in culture and business while stifling free expression; the Communist Party maintains its right to use power arbitrarily while attempting to create an inviting climate for business; etc.
- China is surrounded by neighbors that are either actively or potentially hostile.
- The government, in recent times, has tried to maintain stability in the face of problems created by excessive debt by increasing the debt, which obviously won’t work in the long run.
- Younger Chinese have no memory of the condition of the country in the 1960’s and 1970’s. They will have less patience with the government than their parents do when it fails to meet their rising expectations.
So how does this play out by 2030? Here are some tentative predictions:
- There will be a serious debt crisis between now and 2030 that will have world-wide implications. The government has enough resources, including some residual goodwill among the population, to survive it.
- Growth will slow significantly, partly due to natural forces, and partly due to the government’s inability to adjust to changing circumstances and resolve the contradictions identified above.
- The government will succeed in creating a viable safety net.
- China will become the world’s largest economy, but will remain stuck well behind Japan and South Korea in terms of per capita GDP.
- Its relations with its neighbors will be the subject of future posts.