Much is being made about the potential for new Cold War developing with a rising China. Like the anxious claims that Japan was going to overtake the United States in the 1980's (remember Gung-Ho?), China's future is not only uncertain, but its present is not completely understood. That's because their phenomenal growth rates are always dutifully reported, along with the sheer numbers of their domestic market, but most analysts report these numbers in a vaccum. Robert Wang, writing in this months Foreign Service Journal, takes a more skeptical view of China's outlook in China's Economic Growth: Source of Disorder?
As rapid as China’s economic growth has been, however, it is important to put it in perspective. We need to remember that its 2004 GDP of $1.65 trillion is still about one-seventh that of the United States, one-third that of Japan and about the size of the British economy. Its per capita GDP of slightly over $1,000 is less than one-fortieth that of the United States in nominal terms, and even in terms of purchasing-power parity only about one-eighth. And when we talk about China becoming a global manufacturing center, we should bear in mind that U.S. manufacturing alone (which accounted for about 15 percent of U.S. GDP) produced value greater than the entire Chinese economy last year.
Moreover, the pace of the PRC’s growth is likely to slow as its economy matures and its base expands in the years ahead. Beijing also faces an increasingly difficult task in reforming its financial system, with some of its four state-owned commercial banks still registering non-performing loan ratios above 20 percent (even by Chinese calculations) and a virtually non-existent capital market outside of its banks. Beijing is also working to restructure its relatively inefficient state-owned enterprises that still account for nearly half of its economy, and to alleviate poverty in the countryside, where 200 million people still live on less than one U.S. dollar a day. Environmental degradation — a result of rapid growth — imposes hidden costs of perhaps 8 percent of GDP or higher. Last but not least, the country faces severe infrastructure and resource constraints, as well as an aging population, as it seeks to sustain its rapid economic growth in the years ahead. So, while acknowledging China’s rapid growth, we must be careful not to exaggerate its magnitude and its likely impact on the global economy.
We should then, keep in mind the reality, instead of the hasty extrapolation which seems to serve as analysis on this topic. Because, if Mr. Wang is right, not only is the Chinese Colussus not really that colossal, but its market is on a crash-course with its authoritarian political structure and unforgiving demographics. The inevitable market correction -- and there always is a market correction -- coupled with inflexible demographics will hamstring any economic recovery and highlight the stark differences from interior to the coast, and will destroy any remaining shred of legitimacy of the Chinese Communist Party. The center will not hold. But will they go out with a bang, or a whimper?
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