Observations on China’s economy

I found this interesting: John Pomfret of the Washington Post takes some wind from the sails of the argument that within 10-20 years China’s economy will outpace that of the United States. This was argued in The Economist, for example, recently. It’s curious that so many people that consider themselves “liberal” would celebrate the potential for an illiberal and often brutal regime to become the world’s largest economic superpower, isn’t it?

But Pomfret’s article focuses on the facts of the argument, and he finds them quite lacking. Here’s the highlights:

Too many constraints are built into the country’s [China's] social, economic and political systems. For four big reasons – dire demographics, an overrated economy, an environment under siege and an ideology that doesn’t travel well – China is more likely to remain the muscle-bound adolescent of the international system than to become the master of the world.

In the West, China is known as “the factory to the world,” the land of unlimited labor where millions are eager to leave the hardscrabble countryside for a chance to tighten screws in microwaves. If the country is going to rise to superpowerdom, says conventional wisdom, it will do so on the back of its massive workforce.

But China’s demographics stink. 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.

The big number wheeled out to prove that China is eating our economic lunch is the U.S. trade deficit with China, which last year hit $256 billion. But nearly 60 percent of China’s total exports are churned out by companies not owned by Chinese. China is part of the global system, but it’s still the low-cost assembly and manufacturing part – and foreign, not Chinese, firms are reaping the lion’s share of the profits.

China’s environmental woes are no joke. This year, China will surpass the United States as the world’s No. 1 emitter of greenhouse gases. Sixteen of the world’s 20 most polluted cities are in China; 70 percent of its lakes and rivers are polluted and half its population lacks clean drinking water. 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.

Yet we seem to revel in overestimating China. Recently I was at a party where a senior aide to a Democratic senator was discussing the business deal earlier this year in which a Chinese state-owned investment company had bought a big chunk of the Blackstone Group, a U.S. investment firm. The Chinese company has lost more than $1 billion, but the aide wouldn’t believe that it was just a bum investment. “It’s got to be part of a broader plan,” she insisted. “It’s China.”
I tried to convince her otherwise. I don’t think I succeeded.