03 January 2011

China in the Future

Napoleon once declared that "[w]hen China awakes, it will shake the world." This was one of the earliest examples of a trend that has grown increasingly common: the description of China as the new superpower, either opposing or even replacing America in the current unipolar world.

I don't buy it.

To me, this idea of an unstoppable China is generated mostly by graphs like this one from the Council on Foreign Relations, showing China's huge trade surplus and its steady trend:

It's an impressive rising line, to be sure - more about it later.  Graphs of the same ilk have spawned countless lines of newsprint, hand-wringing about how America will survive in the new century as its dominance fades. Thomas Friedman at the New York Times is a serial offender, wedging his concerns about China in with annoying frequency but impressive rephrasing:

The world system is currently being challenged by two new forces: a rising superpower, called China, and a rising collection of superempowered individuals, as represented by the WikiLeakers, among others. ... China has put on a sound and light show these past few weeks that underscored just how much its rising economic clout can be used to warp the U.S.-led international order when it so chooses.

For the U.S. visitor, the comparisons start from the moment one departs Beijing’s South Station, a giant space-age building, and boards the bullet train to Tianjin. It takes just 25 minutes to make the 75-mile trip. In Tianjin, one arrives at another ultramodern train station — where, unlike New York City’s Pennsylvania Station, all the escalators actually work.

But the totally bogus “discrediting” of climate science ... helped scuttle Senate passage of the energy-climate bill needed to scale U.S.-made clean technologies, leaving America at a distinct disadvantage in the next great global industry. And that brings me to the contrast: While American Republicans were turning climate change into a wedge issue, the Chinese Communists were turning it into a work issue.

All the long-term investments that China has made over the last two decades are just blossoming and could really propel the Chinese economy into the 21st-century knowledge age, starting with its massive investment in infrastructure. Ten years ago, China had a lot bridges and roads to nowhere. Well, many of them are now connected. It is also on a crash program of building subways in major cities and high-speed trains to interconnect them. China also now has 400 million Internet users, and 200 million of them have broadband. Check into a motel in any major city and you’ll have broadband access. America has about 80 million broadband users.

That's just a small sample from just one columnist. There are a lot of similar ones out there. The idea is such a common one that it was even the plot of an episode of The Office!  To many people, it's almost a truism that China will rise up to oppose or surpass America.

But I just don't see the juggernaut everyone else sees, for a variety of reasons.

The big reason has always been environmental. The smog has become legendary (NYT: only 1% of Chinese citizens breathe air that meets EU safety standards) but far worse is the results of rampant carelessness in their industrialization and the huge scale of their construction projects.  Projects like the Three Gorges Dam might be awe-inspiring in their size, but they're also terrifying in their damages. Landslides have been increasing, their resources are being stripped open, and their waters are souring.

In many ways, China's engaged in the same rush towards development once experienced by America and Europe, years ago. New technologies and methods have combined with a new political environment, and mines has been opened and rail has been laid in a mad hurry. This rush did serious damage to the environment in the West, back in the day - the bubbling pits of cyanide in Montana for leeching gold testify to the lasting harm.

The obvious retort is that it didn't hold America back very much, but the reply is that we live in different times. Decades ago, no one could have built something like the $60b rerouting of the Yangtze, which includes canals of up to ten times the length of the whole Panama Canal. With modern technologies and an autocratic government, China has been doing staggering damage to its land, with no signs of respite.

Eventually - probably in not too long - all this damage is going to start catching up to them.

Another reason for my skepticism about China-as-juggernaut is economic/industrial. It's true that there are a lot of scary graphs, like the one I showed above, but they're misleading. The trendlines all slope upward, but that's because China started with nothing.

Look at this graph of cars in the parking lot of my school, over time. Starting from the morning, the number of cars parked there has steadily increased. At five in the morning, there were zero. By noon, there were more than twenty. A scary trend: cars in the parking lot might be the new superpower. Except there's one thing wrong with further expansion: the parking lot is full.

In the same way, China started off with a lot of people and resources but no development, so they were just a big empty lot waiting for industries to come park. But as they all start using the Internet and buying shoes and exporting lamps, the lot is getting full. The easy gains have been made, and then they had to start loosening political restrictions to keep up the growth. Before too long, they will no longer be developing, they'll be developed. And considering how far back behind America they still are - their GDP is less than a third of ours - I just don't think they have enough easy gains left in them.

Here's a good example: Megan McArdle at The Atlantic shows how China's port cities are all now superdeveloped, forcing further industrialization to either move west and pay an increasingly higher overhead or stay put and increase wages and autonomy. She also mentions the economic cost China has paid for its forced growth, with banks saturated with mandatory bonds and inflation looming.

Now, I'm not an economist, but a much-talked-about paper (pdf) from Timothy Kehoe and Kim Ruhl out of the National Bureau of Economic Research at Cambridge has suggested a theoretical underpinning for this reasoning, as well. It's interesting - if technical - reading, but the very simple upshot is:

We sketch out a theory in which developing countries can grow faster than the United States by reforming. As a country becomes richer, this sort of catch-up becomes more difficult. Absent continuing reforms, Chinese growth is likely to slow down sharply, perhaps leaving China at a level less than Mexico’s real GDP per working-age person

Yet other reasons can be found for skepticism, such as social. China has famously long had a "one-child policy" restricting some families to one child, and otherwise does a lot to encourage a lower birthrate. As a consequence, the birthrate dropped from an average of five children per family to fewer than two children per family. But while this ameliorated some problems somewhat, like overcrowding in urban centers, it has also led to others: most prominently an approaching collision of age cohorts: one working child trying to support two parents and four grandchildren (known in China as the "4-2-1 Problem").

So for these reasons and others, I take a skeptical view whenever someone wails about the yuan appreciating, or faster increase in per capita income in China, or the faster change of real GDP growth, or whatever.  I just remember that it's a lot easier to park cars in an empty lot.

And before too long, the lot is full.


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  2. Very interesting read. Thanks for your take. It sure puts things into better perspective, because that's all we here in the media--the "rise" of China as a threatening force to the US. Great--necessary contrast!