Shattering the China Dream
Normal service resumes, after a rather longer hiatus than intended.
And how better to begin than with a report than runs counter to the consensus of Beijing’s inevitable march to global economic hegemony. The Lowy Institute offers a detailed analysis of the limits on further growth from the China model.
This is hardly a prediction of collapse, but it does suggest that the idea of the US receding from its economic dominance is less likely than many have believed.
Three key takeaways:
China will likely experience a substantial long-term growth slowdown owing to demographic decline, the limits of capital-intensive growth, and a gradual deceleration in productivity growth.
Even with continued broad policy success, our baseline projections suggest annual economic growth will slow to about 3% by 2030 and 2% by 2040, while averaging 2–3% overall from now until 2050.
China would still become the world’s largest economy, but it would never enjoy a meaningful lead over the US and would remain far less prosperous and productive per person even by mid-century.
It is worth pointing out that this is a “best-case” scenario. That is, even if China continues to sustain growth, the authors believe China’s growth rate will not achieve escape velocity. There remains, in addition, the possibility of a deeper dive in China’s fortunes of the kind that bearish types usually contemplate.
“Importantly, our argument is not based on China ‘failing’. Rather, a substantial growth slowdown is likely even if China continues to see a good degree of ‘success’ in terms of productivity growth, education, business investment, containing financial risks, and generally sustaining strong increases in average living standards. In this sense, our argument is qualitatively different to those of other China growth pessimists who predict a substantial slowdown due to increasingly deficient policy, mounting financial vulnerabilities, or the simple statistical improbability of China sustaining its growth exceptionalism forever.”
The Lowy Institute is an Australian think tank of some note, which also publishes the Asia Power Index and has hosted an impressive roster of speakers:
Past Lowy Lecturers have included H.E. Dr Angela Merkel, Chancellor of the Federal Republic of Germany; General David Petraeus AO, former Director of the Central Intelligence Agency; Rupert Murdoch AC, Executive Chairman of News Corp; and Lionel Barber, Editor of the Financial Times.