The buzz around China set to dominate the world sounds similar to previous predictions viewing Japan as the next superpower, in the not so distant past. China got a couple of things right, and all the others wrong. There is an insightful article in Washington Post by John Pomfret, who spent there 28 years. He highlights the most important issues facing the future growth.
Demographic trends will undermine China’s main competitive advantage:
No country is aging faster than the People’s Republic, which is on track to become the first nation in the world to get old before it gets rich. Because of the Communist Party’s notorious one-child-per-family policy, the average number of children born to a Chinese woman has dropped from 5.8 in the 1970s to 1.8 today — below the rate of 2.1 that would keep the population stable. Meanwhile, life expectancy has shot up, from just 35 in 1949 to more than 73 today. Economists worry that as the working-age population shrinks, labor costs will rise, significantly eroding one of China’s key competitive advantages.
China’s economy is going to be big by the virtue of size of its population, but living standards are low:
One important nuance we keep forgetting is the sheer size of China’s population: about 1.3 billion, more than four times that of the United States. China should have a big economy. But on a per capita basis, the country isn’t a dragon; it’s a medium-size lizard, sitting in 109th place on the International Monetary Fund’s World Economic Outlook Database, squarely between Swaziland and Morocco.
Environmental issues are out of hand:
By 2030, the nation will face a water shortage equal to the amount it consumes today; factories in the northwest have already been forced out of business because there just isn’t any water. Even Chinese government economists estimate that environmental troubles shave 10 percent off the country’s gross domestic product each year.
The environment is not innovation-friendly:
The place remains an authoritarian state run by a party that limits the free flow of information, stifles ingenuity and doesn’t understand how to self-correct. Blockbusters don’t grow out of the barrel of a gun. Neither do superpowers in the age of globalization.
These rather serious challenges should give everyone a pause before extrapolating China’s past growth to the infinite future.