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When China is no. 1

By Andrew J. Nathan

26 February 2009

Of the many factors that will shape the world economy in the coming decades, none is bigger than the rise of China. Today, China is the world’s fourth-largest economy in dollar terms. By most projections, China will be number one sometime within the next 30 to 40 years.

But historically speaking, China will be a very new kind of number one. China’s dominance will be based neither on technological supremacy nor on an ability to colonize other nations. Rather, it mainly will be based on demography: China will be the biggest economy because it will have the biggest population. On a per capita basis, China will still be poor relative to other economic powers for the foreseeable future.

This picture may be at odds with the conventional perception of China as the rising juggernaut. But let’s first put its economy in perspective. It is true China has achieved decades of breathtaking growth. It now ranks at or near the top in terms of foreign-exchange holdings, trade volume, and inflows of foreign direct investment. But even at number four, China accounts for only 6 percent of the global economy, equal to about two Californias. On a per capita basis, China sinks further. It is 49th in foreign-exchange reserves per person. It is 92nd in exports plus imports per person, and 106th in GDP per person. Lacking a reserve currency, like the US dollar, China cannot set the parameters for commodity prices, inflation, interest rates, or stock prices around the world. Nor can it call the shots in the World Bank or International Monetary Fund.

Indeed, given its size, China’s most important contribution to the rest of the world now and into the future will be to take care of itself. Its ability to satisfy most of its own needs—in energy, grain, and cotton—is crucial to world price stability. The gradual growth of its economy helps the rest of the world remain stable. Economic growth helps keep China politically at peace, avoiding a breakdown that could saddle the rest of the world with refugees, public health problems, and transborder crime problems spilling out of China into neighboring countries. In a sense, then, big as it is, China remains a supporting player on the global economic stage.

China’s ascension could be derailed by domestic instability or global economic shocks, but assuming that it does become number one, what will it mean for China’s place in the world?

Unlike other number ones in history, China is not likely to be the world’s leader in technology. To be sure, its economy has advanced technologically. Its high-tech and military industries are continually improving, its export industries are moving up the value chain, and China’s national research institutes are reaching for the global lead in biotechnology, particle physics, and other fields. But unless the other high-tech nations stop competing, China will not surge ahead of them in a wide range of fields to become the global fountainhead of technology like 19th-century England or the 20th-century United States, because while China advances, other nations will advance and keep the lead in many fields.

Nor will it dominate militarily. Although China’s economic size will give it an ever-growing appetite for oil and other raw materials, it will not be able to gain energy or commodity security through conquest the way the colonial powers did in the 18th and 19th centuries, or through indirect neocolonial control as the United States did in the 20th century. Barring the collapse of other strong powers, there will be no power vacuum to expand into, nor will China in the foreseeable future have the kind of military lead to force its way to supremacy. Neither conquest nor domination is an option. China will have to get hold of the resources that it needs through economic means.

That means that China’s prosperity will remain interdependent with the prosperity of its global rivals such as Japan and the United States. A large part of China’s wealth will still come from selling labor power through manufacturing, and this will require trade both to import energy, materials, and components and to export finished products. China will not get ahead if its rivals do not. The decline or destruction of other countries will not help China. This is all the more so as globalization has intensified interdependence around such issues as climate change and public health. Clearly a richer China will have a growing stake in a peaceful world. To be sure, disorder around its borders could tempt a Chinese military response, but from China’s point of view intervening militarily will be a distant second-best to trading peacefully with its major sources and markets.

Still, top status will confer special influence on China as it has on other economic leaders in history. China’s way of doing business is already having an influence around the world, including the emphasis on personal relationships rather than contracts (often shading over into corruption) and the role of government in managing the market and favoring chosen enterprises. As China regulates its domestic market—whether it’s in health standards, packaging, M&A, or rules for stock offerings—companies around the globe will find it efficient to accommodate operations to those standards. As the “Beijing consensus” evolves, world businesses will evolve to keep up with it.

Less tangibly, we should expect to see a Sinicization of global culture through the influence of Chinese consumers’ tastes. Clothing styles, food flavors, the design and packaging of global brands, music, sports, and entertainment will respond to the draw of the Chinese market. More and more, we should expect to see our youngsters studying Chinese from elementary school. Moving to Shanghai or Beijing to start a career will no longer be an exotic adventure.

What about the longer term? Will China sustain its status as number one? If so, can it eventually gain technological and military leadership and seize superpower status? That is very far in the future, but one should be wary of straight-line predictions. China’s rate of growth is liable to level off as it becomes a mature economy, so the current disparity in growth rates will not continue forever. Besides, technological and military power are relational. China will only forge ahead of others if the United States and its allies do not continue their own technological and military growth. China will almost certainly become the world’s largest economy, but number one status won’t confer as much power as it did in the past.

Comment [28]

Agree? Disagree? Let us know what you think. Please include your full name with your comment. Comments may be edited.

A communist state that abuses human right becoming the economic world leader is a horrible vision. Is that the kind of economic leader we are searching for? Is it acceptable measuring Chinas economic power by overpopulation and cheap manpower?

When I think of all those facts a question comes to my mind: How is this breathtaking growth controlled by the western politics? On the one hand the Chinese working circumstances get criticized heavily by the western economics but on the other hand those critics export for cheaper manufacturing costs. In the future and in age of globalization, I think China has to take care of its global rivals keeping their import and export of goods alive. Consequently and finally, I am of the opinion that this will be the warranty for a peaceful future.

Posted 30 December 2009, 06:45 by Bachernegg, Pfattner, Moritsch,Private University Schloss Seeburg
Balance of Powers is likely reach an equilibrium, so there is a growing hope that there will be more Harmonious world and end of Unilateralism.

Posted 26 December 2009, 08:57 by Husin O'Bama
I found this a balanced and accurate article. I do wonder, though, why so many westerners believe their technological edge is sacrosanct. I see no reason why China should not catch up in most fields in a decade or so. It has the funding, it has the manufacturing base (especially the networks of suppliers), it has the engineers, it has the ambition—from the politbureau down to the backstreet chestnut stall—and thanks to Jv transfers it has a lot of the basic tech and processing knowhow. It is a matter of time only.

The big issue in coming years is going to be how to deal with a superpower that is just so different to the established powers. It is not democratic, rule of law does not function well, and the state is still involved in all levels of industry. China is just not compatible with the postwar world order. This is going to cause all sorts of stress and friction. Another interesting question is what will happen to the MNCs. As China increasingly dominates all major consumer markets, will they become sinicised, like the Mongols, and transfer their HQs to China to stay competitive? It seems possible.

Posted 14 July 2009, 09:45 by oohkuchi
Well why not use data when data is available?
Angus Maddison is pretty good at what he does and in an OECD study (2007) he has the following projections for 2030.

Percentage share of world GDP in 2030:
China 23.1
US 17.3
Western Europe 13.0
India 10.4
Japan 3.6
Russia 3.4

Per capita GDP in 2030 ( at 1990 International PPP $)

US 45774
Western Europe 31389
Japan 30072
Russia 16007
China 15763
India 7089

As to if we will all be dressing like the Chinese? Just look around and you will see why that is not likely to happen. In fact what we see is the proliferation of western dress, western movies, western food, western ways of talking.

In Singapore the home of “Asian Values” people are essentially westernized and you can see “Asian” girls chasing middle-aged pot-bellied western (white) men because as the saying goes “they are dreaming of a white christmas”. People wear western clothes, they now announce very proudly that they ‘drink wine’ and its not chinese wine, but French or Australian. News casters at local TV stations are so confused about whom they should ape that their accents switch between American, British and Australian. Why don’t they want to use their own native accent? They shop for western “branded-good”, which incidentally have been doing really well in many countries in Asia.

The Indians are not different, except because they have a strong sense of their own culture they are able to effortlessly switch between east and west in language and clothing and perhaps even socially.

Japan? probably the most cultured and stylish society in Asia, but office attire is all western.

China will not dominate militarily? Perhaps reading Robert Kaplan’s piece in Foreign Affairs (April 09) will put things in perspective. I thought China is making huge efforts to build a blue ocean fleet.

Most importantly, its not the GDP but what China stands for. No. 1 has to stand for something and when it comes to China people are not sure what that is. Remember Obama’s inaugural address … lot of talk about values.

What sort of a message will China send out to the world? We are an authoritarian and repressive state. We do not believe in individual dignity and freedom. We do not believe in God. We only believe in the communist party and making money because to be rich is glorious. Every now and again we like to whip up nationalism in our population lest the world forgets fascism. And by the way we are a great country you should try to understand us. So come follow us and give us the respect that is rightfully ours.

Posted 18 June 2009, 21:07 by A Lall
An interesting thought piece and a topic worth considering given the mind set of the Chinese about their palce in the world. But there are other weights on the Chinese ( people and economy). Demographics (they are aging); Environmental (car and factory pollution causing health and economic problems); Climate Change (on-going desertification; sea level rise); Politics(support of Sudan, repression in Tibet).

With an older, unhealthy population, less water and arable land, encrouchment of Beijing by the desert and Shanghai by the sea…how does China sustain it’s growth and vision. Look for major tumult in the next 15-25 years.

Posted 23 April 2009, 09:25 by LouH
Andrew,

There is one thing I don’t agree with in your article. And that is your arguments regarding China’s prospect of technological leadership.

Throughout history, all superpowers did not start off as technological leaders, and neither did any preceding superpowers waited for them to catch up.

Take China for example. According to the Cambridge university in England, at least half of ALL the fundamental inventions and discoveries in the ENTIRE world were made by ONLY 1 people, and that is the Chinese within the borders of China. Much more than the rest of the ENTIRE world combined (including the Greeks, etc). Their research is endorsed by the United Nations (UNESCO). It is based on these that we have arrived at our world today.

In those days, no-one would have imagined it possible for the West to catch up and eventually lead. But it did.

————————————————-

Just in case you want to explore this topic further, here are 3 sources :

“Science and Civilisation in China Series” published by Cambridge University Press in 7 volumes.

“The Genius of China” by Robert Temple. (This book was translated by UNESCO into 43 different languages).

“The Chinese scientific genius” (UNESCO Courier, Oct, 1988 by Robert K.G. Temple)

Posted 15 April 2009, 00:25 by Chan
I definitely agree. The No. 1 status means nothing.

Posted 14 April 2009, 16:30 by Flying Pig
I am a Chinese, I am not so optimistic about China’s future if the people remain unenlightened.

Posted 2 April 2009, 05:04 by yeyuan
These sort of fanciful projection articles should be taken very seriously. Twenty years ago the world thought Japan would outgrow America and become ‘number one.’ No one saw the Japanese bubbles or the challenges (demographic or otherwise) facing its economy.

China is in a similar position. Economist predicting 8-10% growth for the next thirty years are clueless. Already we are seeing cracks in the facade – simply put, much of the scorching growth rate was based on stock and real estate bubbles and an export model that China will soon price itself out of.

Plus an aging population, environmental problems, endemic corruption and a lack of the rule of law . . . China will settle in at number two in total size because of her vast population, but the numbers do not support her continued blazing ascent up the world economic ladder.

Posted 29 March 2009, 21:10 by Alec
Dear Andrew, I enjoyed reading this piece and found it to be fairly balanced as far as these types of articles tend to be. I’d like to share a couple of thoughts.

One just can’t help smelling the fear in the air whenever the topic of a rising China comes up. But didn’t the big Mr. O just give us permission to put away the fear and try on some Hope?

Let’s look again at the scenario put forth by a fellow reader. What if another 1.3 billion people started making $43k USD a year? If that income level came with ambitions of each Chinese person driving around an Escalade and living in a 3000 sqft house in the suburbs, then maybe we are headed towards apocalypse. Crazier still, what if the other 3-5 billion in south Asia, South America, and Africa wanted to join the party?

Taking your point about linear projections in another direction, maybe that kind of lifestyle is not the right picture for our future. The current pattern of unsustainable energy usage and environmental destruction is not the only formula for improving standards of living.

I think the other 5 billion people in the world have every bit as much claim on the quality of life we enjoy as do we ourselves. The only way that can happen (without destroying the planet) is that we must work together to drive a 10-20X improvement in energy-, resource-, and environment-efficiency. Is that possible?

Let’s dare to hope. It’s a beautiful dream and one that will keep us all busy innovating for the next 30, 40, 50, 100 years.

I plan on covering these types of issues in my blog www.whythatmatters.com. Please drop by if you have a chance.

Posted 28 March 2009, 22:06 by Ed Chan

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