The World’s “Next” Largest Economy: Beyond the Numbers
Deutsche Bank economist Jun Ma has predicted that China will become the world’s largest economy within the next decade. In an interview with The Australian, Ma stated that “in ten years’ time, China will be bigger than the US in GDP and a bigger source of imports than the US…the US is going to be more dependent on Chinese demand.” I tend to agree. In fact, since the launch of this blog (and well before that) I have been relatively forthcoming about four of my own related predictions:
1. China will catapult its way to global economic dominance, surpassing the US;
2. An overhaul in terms of US-China diplomatic relations is desperately needed to reflect today’s interdependent reality;
3. Corruption is and will continue to be the single largest impediment to China’s development overall;
4. More Americans need to learn Mandarin and understand China beyond what is printed in The New York Times.
And, while I’ve endeavored to support and explain the last three predictions in prior posts, I’ve never quite clarified why I think China is slated to quickly become the world’s largest economy beyond citing hard numbers. Here are a few “soft” reasons:
Infrastructure projects have traditionally been seen as a surefire way to stimulate a country’s economy, providing tens of thousands of jobs that simultaneously facilitate the building of new bridges, highways, railroads, and buildings, as well as the revenues which come from them. In China, we have seen entire cities erected in a matter of years; just look towards the east side of Huangpu River and into a former rice paddy that has become the spectacularly modern district of Pudong. If you think that’s impressive, consider the fact that China is slated to complete the world’s largest high-speed train system in the world by 2020 with a total allocation of an estimated $300 billion for the entire project. The US, on the other hand, has set aside $8 billion in the US stimulus plan for high speed rail development. Money aside, there’s another very significant issue. After Mao’s reign, the People’s Republic of China was left with a relatively blank slate. On the other hand, while the US as a developed nation had once been able to boast about its first-class transportation systems and glorious urban epicenters, much of its infrastructure dating back to a more promising time is now beginning to crumble (stand on nearly any subway platform in New York City and you’ll see what I mean). China has long understood that destruction and possibility often go hand in hand. Given recent examples of infrastructure projects like Boston’s Big Dig and even Amtrak’s Acela, we in the US have seen that, when it comes to infrastructure innovation, our past has a tendency to haunt us.
China’s population of 1.3 billion people had once mainly been viewed as a potential hindrance to stability and development. After all, how could a country feed so many mouths and would it even be possible for the natural environment to sustain itself under such an enormous weight? We have already seen the strains in multiple forms as well as some other less desirable consequences stemming from two generations of population control (such as the sex ratio imbalance). However, it is also evident that such a massive and highly migratory workforce better facilitates the realization of large-scale projects which have managed to awe the rest of the world for both their size and time to completion. Secondly, China’s manufacturing sector has recently seen a shift from one that mainly served its export-led economy to a model which better incorporates internal demand of consumption while remaining as a top global manufacturing and offshoring destination, thereby continuing to utilize China’s massive population of unskilled laborers as an engine for growth. Additionally, China has recognized the need to expand its pool of educated, highly-skilled workers significantly and boost its contributions in the areas of science and technology, something that can undoubtedly be accomplished given the availability to cultivate future talent and fuel competitiveness as encouraged by government-led programs. Put simply, China is turning its population burden into an advantage and the potential power of 1.3 billion people to support this development process far exceeds numerical comprehension.
In education, US students lag far behind the rest of the world. Compare both performance, standards, and perceptions about the importance of school and it becomes clear that China’s future shines a brighter star in quantitative-based disciplines. And, when we think about the future in terms of what will move us forward globally, the answers are often found in math and science- whether for green technologies or next-generation transportation models or the internet or even space. In other words, many of tomorrow’s innovators will need to possess tangible and measurable skill sets not typically found in your average liberal arts curriculum but instead gained in biology labs, computer science classes or econometrics lectures. According to a report published in The Dallas News, “eight out of ten jobs in the future will require a background in math, science or technology, yet students in the United States currently fall behind their international peers in educational achievement. Out of 30 countries, the US recently finished well below average, falling to 25th in math and 21st in science.” At the top of the heap? China. Add this to the fact that 300 million Chinese are currently studying English while gaining some understanding of Western culture and history through curriculum, movies, online publications, social media and the thousands of expats that have settled in the larger cities looking for a better future (yes, a better future in China). How many Americans study Mandarin, on the other hand? Not many. Recent estimates show less than 50,000, although that number is starting to increase. What do Americans typically know about Chinese culture and history? Fortune cookies, rice paddies, chopsticks and Mao. We’re all members of a globalized, technology-based society. China’s definitely received the message. The US, on the other hand, appears to be wrestling with a system malfunction.
In asserting that China will become the world’s largest economic powerhouse within the next ten years, it is probably worth noting that this emergence is not synonymous with “political power” nor am I insinuating that China will “rule the world.” A multipolar global structure would not make such an arrangement possible anyway, which is where we are likely heading. Beyond numbers, there are many other reasons why China will be the world’s next great nation, and as a US citizen, I think a focus on fearing the inevitable rather than boosting US-China cooperation will be entirely detrimental to both sides. If anything, the possible reasons behind China’s success- such as the three mentioned above- may provide valuable lessons, deeper East-West connections and a healthy competitive spirit to secure America’s own future.
Do you think China will become the world’s largest economy within the next decade and if so, why? What will China’s growing political and economic power on a global scale mean for US-China relations? What might this shift mean for global business? For security and diplomacy? I’d love to hear your thoughts and opinions…
For a bit of balance, I think you’ll appreciate this, Aimee. An op-ed about China’s rise by Conrad Black for the National Post newspaper in Canada:
http://bit.ly/10wzTx
Very nice, though-provoking post, Aimee!
While I also agree that China will eventually be the world’s largest economy (for many of the reasons you listed, and more), I am less sanguine about China’s short- to mid-term future. Over the past three decades, it has become easy to look at China’s trajectory of growth and project a straight, upward sloping line forever into the future. Indeed, China has met most of its own (overly optimistic) goals far ahead of schedule.
However, as China’s economy gets bigger, the harder it becomes for the government to control as many aspects of the economy as they wish. Furthermore, as Chinese people get richer, their demands to be heard only grow.
China is wise to be making its massive infrastructure push right now because, eventually, increasingly loud citizen voices will have a say in how and where infrastructure is built. It is already beginning in Shanghai as citizens stopped the maglev extension from Pudong to Hongqiao Airport, and they are gearing up for a similar fight over the new train line to Hangzhou. (It seems that real democracy would be a lot less messy, but that’s an entirely different topic.)
I think your comparisons with America are spot-on — particularly in education. Our system is geared more toward allowing students to “find themselves” and less toward equipping them for productive futures. The fact that some students don’t like math is no excuse for not developing those skills. And what the hell is a “gap year”? College graduates are adults. They should work.
In terms of diplomacy, well, I hope it isn’t too late to start treating China with a little more respect. Not that we should give China a pass on everything we disagree with, but we should treat them as the future superpower that they are. It seems to me that the Obama administration has gotten off to a good start, but there are still ignorant members of Congress who poke the dragon with sticks every chance they get. Someday the dragon will be much larger.
While we shouldn’t project China’s growth as a permanently upward sloping line, we should also be careful not to count America out yet either. Every time the US goes through a recession, everyone is eager to say that America is finished. But we always seem to find a way to bounce back, to take innovation to the next level. After Vietnam and Watergate, no one would have been willing to predict anything as world-changing as the rise of the Internet.
China will get bigger, but not without problems. The US will solve its current problems and move on to bigger, better things. As much as I hate references to the “G2″, it’s not too much of a stretch to imagine that these two countries will carry a lot of weight in terms of international relations, economics and climate change. It will go much smoother if we are friends.
Very good points Aimee — and I concur with your 4 predictions/goals above. In contrast to Ma’s enthusiasm about China (and perhaps our own), here is some required reading:
Josef Joffe’s incisive “The Default Power: The False Prophecy of American’s Decline” in the current (Sept.-Oct.) Foreign Affairs
http://www.scribd.com/doc/19015738/The-False-Prophecy-of-Americas-Decline
Aimee, I agree with most of your insights particularly Mandarin. Young people in China are learning English – for example by watching Grey’s Anatomy via Hulu – but the PRC is pushing it in any event because it is the language of business. Certainly education is an issue here. But if you watch the movie “Quiz Show” about the 1950 scandals, even then there was talk of a national education problem in the US. It has worsened. But McKinsey and others report that the quality of education in China remains inconsistent – that engineers for example are more technicians when they graduate. It is axiomatic among most Western companies that they will have to retrain these young people when they are hired. Nonetheless, I agree that China is trending upward quickly. Gary Wells
Homie,
Ten years is pushing the boundaries. Twenty years is reasonable, maybe.
There is only so much that education and money can do for the Chinese because China’s problem has never been the limits imposed upon it by global trade patterns. Rather, throughout it’s future has always been decided by its rulers’ insistence on governance by men, rather than governance by law.
For China to truly overtake the US as the world’s premiere country, it has to develop the ability to move the world forward. But, until the political reality of the country catches up with its hyper-speed economic engine, the Chinese will always lack the international prestige, recognition, and standing to make too much of a dent in the social underpinnings current global consciousness.
More importantly, until that political reality is sorted out, the economic incentives for Silicon Valley level innovation cannot exist and will not exist. How many people are willing to put in 120 garage hours per week if their work is not likely to be rewarded in proportion to the work they put in? But is likely to get stolen banned or worse?
That is not to say that innovative research and technology break throughs are not happening in China – they are, but not at the same rate as in the United States.
Because China cannot, without a change in its politics, properly incentivize people, then its other human advantages mean little for the time being.
I have no idea how bad the education system is in the US (when I went to school in Canada there were definitely some people who graduated illiterate and innumerate to some degree). I have gone to school (at the uni level) in China, and I would bet a 1kg bag of raisins (shipping not included) that the test results were heavily influenced by stacking who got to write the test, and likely outright cheating.