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It’s a Strange Time for the West to Panic About China’s Supposed Supereconomy
Chinese Finance Minister Liu Kun speaks to Governor of People’s Bank of China Yi Gang and National Development and Reform Commission Vice Chairman Ning Jizhe at a conference on China’s economic development ahead of the 70th anniversary.
Yet to quote economist Herbert Stein, “If something cannot go on forever, it will stop.” And maybe that pithy saying offers some insight into China’s future. For instance: A new Bloomberg Businessweek story tells how “mounting discontent among tech workers could hamper the industry’s growth, creating yet another headache for the government.” With the Chinese tech sector slumping, more and more workers are less willing to tolerate “996” shift schedule of 9 a.m. to 9 p.m., six days a week, plus overtime.
Less enthusiasm from young techies is only one of China’s problems. More substantial are deeper structural problems that are already slowing economic momentum. In a bearish Harvard Business Review analysis, Stewart Black and Allen Morrison outline China’s potential growth crisis:
Demographic data shows that China’s working-age population is shrinking. In the absence of drastic improvements in labor productivity, a smaller workforce means a lower GDP growth rate. Japan has experienced a similar decline in working-age population, and it has been unable to achieve the productivity gains necessary to maintain growth. It is unlikely that China’s firms will succeed where Japan’s have failed, primarily because the factors that have driven China’s spectacular growth over the past 20 years—a low baseline of productivity to begin with, an excess supply of rural workers, and easy access to foreign technology—have significantly weakened. … Absent a major pivot in thinking and approach, they will be unable to deliver the productivity gains needed to offset the consequences of the steepening decline in the country’s working-age population. If the current leadership composition continues, we predict that like Japanese firms before them, Chinese companies will begin to slide off the Global 500.
Politicians never seem to give much sense of China’s vulnerabilities, but you can find plenty of analysts who do. The Wall Street Journal’s Greg Ip recently observed that “the country’s state-led growth model is running out of gas. … Absent a change in direction, China may never become rich.” And as my AEI colleague Derek Scissors has noted, “Beijing has long abandoned the pro-market path and shows no true interest in returning to it.” Ironically, then, the most pro-growth thing China could do would be to listen to American demands that it open wider its economy and return to the market-friendly path.
Published in Economics
Yabbut, would the precipitous slowing of China’s economic growth rate make China less dangerous or more dangerous?
Yup, the problems with China’s economy are predictable, but the greater danger is how the rulers will act if they feel their position threatened. If China’s economy enters a crisis, that alone is not really a problem to the US. We can deal with it and recover. The real question is how Beijing might turn it into an international disaster through their attempts to manage it.
JimP,
When you build whole cities in which no one is living something isn’t quite right. I suspect that fundamental economic truths will catch up with the Marxist managed economy of China. Of course, if you could actually open up your society and back basic human rights then who knows you might be able to entice people to invest in China and actually move to China.
After the full horror of the concentration camps in western China is revealed and if they can find no way to let Hong Kong have self-rule, I think China will lock itself in. No one in their right mind would want to move to this giant police state.
Herbert Stein’s dictum is going to come home with a vengeance.
Regards,
Jim
James, Please check out Chris Hamilton’s “Why China can’t compromise on a Trade Deal” at his Economica blog from October 18th of last year.
In this post Chris goes over changes in China’s population. Some stats from Chris:
• China’s 0-24 year old cohort maxed in 1991 at 590 million, is at roughly 414 in 2018, and will fall to 323 million by 2050
• China’s 15-60 year old cohort peaked in 2011 at 947 million, while at the same time the over 60 cohort was at 211 million for a ratio of 4.48 working age population vs retirement age. ( Retirement age by law is 55 for women and 60 for men.) By 2018, the 15-60 cohort was down to 930 million and over 60 was up to 280 for a ratio of 3.32 to one. By 2030, it is estimated that the 15-60 cohort will fall to 858 million and over 60 will rise to 418 million for a ratio of only 2.05 to one. By 2040 the ratio falls to to 1.66. As you know when there are too few working to support the elderly, government subsidies for the elderly go bonkers, as is also happening in Japan and Germany.
For comparison purposes the West ( US plus Europe plus Japan, S Korea, Australia and New Zealand) in 2018 had 796 million 15-60 yr olds, and 260 million 60 and older for a ratio of 3.06 to one. By 2030 the ratio is 1.88, by 2040 1.68. But those ratios include the baby dearth nations of Europe and Japan, which will have similar problems with growth in the future – in fact Japan has been struggling now for almost 30 years. However the retirement age is older in the West which will perhaps significantly dampen the population decline effects and the need to provide for the Elderly.
A key point made by Hamilton is that while the population ratios may be similar the Chinese government debt versus GDP ratio is something like 3.75 to one , while in the US it is closer ( at least officially)to 1 to 1. So his point is that as China’s population continues to decline, it ‘s ability to handle both it huge amount of debt and it’s need to provide for it’s elderly population become hugely problematic.
Also another point Chris emphasizes in other posts is that economic growth has a strong correlation to population growth. So as so many nations like China, Japan and parts Europe start to lose population, their economic growth will suffer. In fact he predicts a huge recession coming because the consuming age cohort ( 18 to 64) in all the consuming nations ( those that consume 90% of world’s goods) will only grow 0.4% (total not annually) over the next 11 years and then starting in 2030 will start to decline.
It seemed we were in a state of panic a few years ago, but not so much today. Having lived through the Japanese Panic of the 80s, I was less susceptible to the Chinese Panic.
This was always the most telling detail, to my mind; the state compelled the construction of these empty cities to goose up steel and concrete stats and encourage property speculation to inflate the value of the buildings. The amount of financial rot those cities suggest is staggering – how many loans and investments are being revalued in a non-transparent banking system to make China’s facade look shiny and strong?
For a long time I think I was like most Americans on the matter – a rising middle-class in China is a good thing, the statism and chauvinism is part of the transitional period, the Marxist platitudes are rote mouthings, the end result will be more like Japan or S. Korea than the sclerotic, dour leviathans of the USSR or the Mao-era China. Watched Xi’s rise with interest, trying to figure out his game, but still thought it might work out to everyone’s benefit, because they’re not stupid.
Somewhere along the line something shifted, and now I am indifferent to their fate. Probably as unwise as thinking things would end up well, but I wonder if I’m alone.
Of course top down will slow their economy but if China is a threat, and I know of no reason to think otherwise, it will remain a threat. That their population isn’t growing is supposed to put us at ease? They have a giant population and lots of problems but will remain a threat for years, perhaps decades and if we don’t somehow educate ourselves away from the utter nonsense the Democrats speak of and too many Republicans practice, we’ll also slow growth and creativity. We have to be smart, engaged, free, creative and dynamic and that means we cannot continue to build and empower a Washington bureaucracy.. The main threat is at home and the Chinese will be ready to take advantage of our stupidity.
Whenever I hear talk of demographics and coming shortages of workers, I wonder, haven’t these people considered the increasing utility of robots?
They don’t because it hasn’t happened yet and they are operating within old models.
Automation is about to explode. The technology is getting amazing and like how computers surpass people in many ways, androids with AI will do the same for almost every job.
Trust me, a worker shortage is not going to be a problem. We will have other problems, but not that.
It’s not very wise to ignore a competitor who has been rapidly gaining size and market share for a couple of decades, even if they are presently having some problems.
It is also not wise to ignore the deficiencies and personnel problems in one’s own structure that allowed the relative success of this competitor to be ignored until very recently.
Yes, but there’s the other great chestnut of wisdom: China can remain irrational much longer than the US can remain solvent. Especially when we’re propping them up with access to American credit and banks.
This is an excellent assessment.
China is vulnerable, more seriously than we imagine. Economically, culturally, internationally, militarily, and in governance, its power is coercive, not popular. This vulnerability led a cadre to promote Xi to ruler for life. That was misfortunate for the CCP. Just like in Russia, the people know. The stain of Hong Kong permeates all they do and say.
We often pretend China is going to dominate — but it is clear their propaganda, loans, bribes, and economic hegemony have limits. African, Asian, Latin American and European countries are exploiting the Chinese, taking the money and then reverse exploiting them into pseudo arrangements for port facilities, etc. Ever patient, the Chinese will lose patience and that is their weakness.
The Chinese military is aggressive, leading to reaction in their neighborhood. They want control, not access like the US promotes. But truthfully, the PLA and PLAN could not even mount a successful invasion of Taiwan. They have good A2/AD, but not great. Good enough to check the US in some quarters. But, we have better. If they attempted a Taiwan invasion – it would set them back at home and abroad for decades, and likely result in failure. A failed invasion of Taiwan would shake the regime to its foundation.
They might promote a military coup or other intervention in Taiwan or some country, but not with the results they expect.
Thus, the durability of their power is limited, their influence important but marginal and wherever they go or whatever they do results in blowback — no one trusts them. They are learning how little power they have in a world they find difficult to control outside, and at times even inside, their borders.
Who are these people who are going around Panicking about China?
I do see people recognizing the weakness and China and working to stick it to them, rather than kiss there butts like every administration going back to the first Bush.
“It’s not very wise to ignore a competitor who has been rapidly gaining size and market share for a couple of decades, even if they are presently having some problems.”
Damn right David.
“Whenever I hear talk of demographics and coming shortages of workers, I wonder, haven’t these people considered the increasing utility of robots?”
China is massively into automation. Far, far beyond anything in the US. Paid for by their massive $50 Trillion dollar version of QE. ( that’s right Trillion). They don’t give a damn about their workers though – their automation is all about competitive advantage and destroying the competition.
But truthfully, the PLA and PLAN could not even mount a successful invasion of Taiwan.
China has invested huge into some very dangerous advanced technology all over the place, in space, in stealth technology, in advanced fighters, in aircraft carriers and a huge navy , in hypersonic missiles and in radical underwater attack facilities, that are designed specifically for taking on and attacking what they see as the vulnerabilities of the US of A. How good it is – is anybody’s guess. But if only a portion of it works in an attack, the world will still be in world of hurt. We are playing catch up – bigly, largely due to the Democratic Gestapo party that wants to destroy our military capacity and that is refusing to address the growing threat of China. The Chinese under the aggressive, ruthless leadership of Xi, nonetheless, are hell bent on world domination- that is for sure.
The problem is that China is using the financial standing and the profits gained from our trade to build this huge war machine, and they will keep on building it no matter what. They are kinda like Germany in 1937 or so, but with weaponry that can destroy the world. It doesn’t really matter at this point whether the Chinese economy declines- their economy is strong enough to continue their military adventurism and global domination ambitions, and with an increasing high tech Orwellian Police State apparatus they have spent billions upon billions to build, the Chinese are betting that any uprising can be quickly and ruthlessly quashed. If the Chinese economy continues to grow their military capabilities will accelerate – they no longer under Xi are shy about what their intentions are. If the Chinese economy falters and is perceived as a threat to their rule, they will do what dictators do when faced with domestic trouble- start a war.
China’s goal is not greater growth. You are thinking like a Yankee. Growth is just a tool to achieve the true goal of regional hegemony. The goal is the nine-line border and subjugation of Asian nations. Acting American is not going to achieve that.
FTFY.