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China’s Century?

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“China is a sleeping dragon that is just beginning to stir.”

What was perhaps Michael Scott’s most intelligent remark on “the Office” has more or less emblemized China’s position in global power dynamics since the end of the Cold War. Be it China’s economic expansionism manifesting itself through the Belt-Road Initiative, the militarization of the South-China Sea and the McMahon Line, or fending off instability in Taiwan and Hong Kong, there is no question that the Red Dragon is not merely “beginning to stir”, but has started to breathe fire.

“China’s Century” is a neologism that has become increasingly pertinent in the past few decades, with the Global Language Monitor finding that the “Rise of China” was a news story whose popularity eclipsed 9/11, the Iraq War, the election of Obama, and even the British Royal Wedding (!). As per analysis by Harvard’s Belfer Center, policy debates on the matter so far have largely bifurcated into two schools of thought: the “declinists”, and those that feel otherwise. The declinists believe that the USA relative to China is in a state of decline, whereas the alternative school of thought believes the US’s power is “durable” and hegemonic, taking advantage of globalization. In order to better understand which interpretation of China is likely to give us a better comprehension of whether or not this will be “China’s Century”, it is crucial to analyze the issue from an economic, demographic, and geopolitical standpoint.

The Lasting Legacy of the One-Child Policy

China becoming a superpower from a purely economic standpoint will hinge on the nation’s ability to exhibit rapid and consistent economic growth, maintain a strong labor force, harbor substantial control of global value chains and trade pipelines, and display improved human development indicators. Bearing this in mind, how does China fare?

Economist Nicholas Eberstadt puts it rather bluntly: “The age of heroic economic growth is over.” The growth of the manufacturing behemoth that was China between 1978 and 2010 was a direct result of a large working population – approximately 925 million people were between 16 and 59 years old in 2011. However, China’s “One-Child” policy between 1980 and 2016 and overall increased life-expectancies, have culminated in an aging population. The World Bank found that by 2050 – around the same time Jinping wants to achieve the “second centennial goal” – 39% of the population will be people older than retirement age. India is also on track to edge China out as the world’s most populous nation by 2026 – an alarming 4 years from now.

The implications of an aging population are multifold. Predictably, the most frightening impact of this aging population for Beijing will be the contraction of the Chinese labor force. Following Deng Xiaoping’s watershed economic agenda in late 1978, labor availability rose by a healthy 1.8% per year, a value now set to drop to -1% per year in less than 2 decades. This in turn will starve the nation of its most important channel of economic growth, with only the least healthy and active segment of the population (55-64 age range) expanding in size. Other, perhaps less noticeable issues arise from the One-Child Policy as well. The significantly disproportionate sex ratio in China – with a 1.18:1 boy to girl ratio in 2005 – could increase the number of “bare branches”, or young, unmarried Chinese men. Eberstadt predicts that this could be a “wild card’…in predicting China’s future”, owing largely to the prospect of family lineages ending.

Rural Development and Educational Attainment

An aging population is by all means not the only issue Jinping will need to contend with. Researchers Scott Rozelle and Natalie Hell, in Invisible China: How the Urban-Rural Divide threatens China’s rise, have noted that the notorious lack of Chinese rural and educational development (educational attainment sits at an estimated 30%: paltry for a nation vying to become a global superpower) could result in a significant rural-urban divide in educational attainment.

The implications of rural under-development could be multifold.

Decline in human capital is a possible spillover effect, as it could adversely impact the know-how, satisfaction, and knowledge of China’s workforce. The evidence so far does not look too promising either: China doesn’t stack up too well against its Western rival on the World Bank’s Human Capital Index ranking, sitting a disconcerting 22 places behind the USA. Structural unemployment may further prove to be another undesirable consequence of this divide, with economists predicting that Chinese structural unemployment could mirror that of India’s in the long-term – a very concerning possibility. From a more long-term standpoint, if measures are not taken by the CCP to counter the issue at hand, China could stay entrenched in the “Middle-Income Trap” – one where nations do not progress out of a certain income level designation. Rozelle and Hell have warned of this taking place – bad news for China’s bid to become a global superpower.

Debt issues, Energy, Big Tech Policies, and foreign relations

A pressing short-term issue could also explain why China’s economic power could continue slowing: debt and speculation. Mirroring Japan’s “lost decade” in the 1990s, widespread speculation in the Chinese housing market meant that asset prices skyrocketed, culminating in a real-estate boom. This was caused, in part, by the government’s push for investment and mortgages in the real-estate sector; down payments on properties were relaxed between 2014 and 2016, increasing mortgages borrowed significantly. Investment into grandiose infrastructural projects and dwellings for future use was significantly increased to the point where “ghost towns” throughout China developed.

Noting the possible downturn a bubble would create, the government in 2020 established the “3 red lines” policy to regulate these real-estate creditors more restrictively. This real-estate bubble looked to crash in late 2020 once the firms providing these mortgages, perhaps most notably Evergrande, were unable to service their mortgage provision debts and were on the verge of defaulting. Although Evergrande narrowly avoided defaulting and bringing down with it the entire property sector of China, Jinping will need to deal with an unwieldy real-estate sector that has so far hinged on moral hazards from banks.

This can only be done once Beijing implements policies targeting the regulation of property sales and increased access to funds. In other sectors as well, China’s exorbitant lending could spiral into a crisis in the years to come, with the national debt-to-GDP ratio skyrocketing from 178% in Q1 of 2010 to 335% in Q2/3 of 2021. Thus, China’s state-dominated lending system will need to systematically change to fend off potential crises.

Furthermore, China’s recent energy crisis and Jinping’s recent regulatory crackdown on private entities have driven overseas investors out of the nation as well. Invariably not good for China’s desire to become a global economic superpower – aspects like foreign investment, trade, and the influx of Multinational Companies (MNCs) are key facets of an economic hegemon.

China’s infamous lack of pure allies does not bode well for them either – China’s most strained relations are with nations that also happen to be her largest trading partners, be it India, Germany, or the United Kingdom. Go figure. Compare this to the USA, which has trade relations with more than 200 nations. In conclusion, there are a multitude of factors that must be considered when analyzing whether or not China could become an economic superpower. China’s endemic debt problems, coupled with highly significant demographic changes and policies implemented, have meant that the long-term outlook for China’s economy is bleak. The 21st Century being “China’s Century” may just be a myth after all.

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