The Great China Debate

This article in Foreign Affairs presents two views on China. One view is that China's economic growth rate will continue to exceed that of the US. China will grow at 7.5% , which is 40% below its torrid growth rate in the last decade, but the US economy will only grow at 2.5%. At that rate China's economy will double in size in less than 10 years. It will take the US economy almost 29 years to double. One factor in China's growth rate is its low cost of labor. That makes China more competitive in the global economy. Its cost of labor is low because its citizens have a lower standard of living than the US and other Western nations. Nations with a higher standard of living are bound to be less competitive. That is one of the reasons why the US encourages China to expand consumption at the expense of internal investment. A higher standard of living in China would erode its cost of labor advantage, and it would provide markets for US exports. Consequently, the main reason for China's global dominance will be the size of its economy which extends its influence over suppliers and customers. Its status as the largest supplier of credit also increases its influence.

The argument against China's future dominance is based upon internal factors within China that are assumed to limit its growth and its role as the global creditor nation. China's economy is large but its per capita GDP is much lower than that of the US. That means that China has a wealth deficit versus the US and that much of its investment has been generated by the state. It also lacks the capacity to innovate that is an essential element for growth. It absorbs innovation supplied by others. The dominance of the communist party is also seen as a limiting factor. Whats good for the party may not be good for China.

Those who attempt to predict the future have a bad reputation. The future is usually full of surprises. On the other hand, it seems rather certain that China will have more influence in the future than it has had in the past. It also appears that US influence has been in decline. Slower economic growth will contribute to the loss of influence, and it will also present social and political problems that will be difficult to overcome. The polarization of politics in the US is likely to worsen, and the ability of government to respond to economic and political challenges will be impeded. The dominance of the communist party in China may be a problem, but the paralysis of democracy in the US has its problems as well. A disinterested observer of the GOP nomination debates would find it hard to believe in the future of a nation that cannot produce better leaders. The level of debate required to excite its base speaks loudly, as well, about the level of knowledge available to a large share of the public. For that matter, the opposition party, is constrained by the need to raise large sums of money to fund political campaigns. A substantial portion of its political base believes that it is less responsive to its needs than it was in the past. The same is true about a substantial portion of the base that supports the GOP. Many would like their party to move further to the right than it can do without losing the center. This is not a good environment for a properly functioning democracy.