China and the Future

After the accountants tallied up their figures, Chinese GDP surpassed Japan’s in the second quarter of this year. No surprises there. The torrid growth of the Chinese economy over the last two decades has made this milestone inevitable. The population of China is ten times greater than that of Japan, so once freed from the economic disaster of communism, even a moderately productive China will eventually be larger than a hyper-productive Japan.

Now, of course, observers wonder when China will overtake the United States. Today the GDP of the United States is three times larger than that of China ($15 trillion as compared to $5 trillion). But over the last couple of decades the Chinese economy has grown at a 10 percent per annum clip, as compared to around 3 percent for the United States. Plotting out into the future is difficult, because, even assuming that growth rates are constant, exchange rates magnify (or minimize) changes. In any event, some economists say ten years, others say twenty, and still others say never.

I find myself chuckling over the view that, having left behind the American Century, we are now in the Chinese Century. I’m just old enough to remember when all the pundits were wringing their hands over the seemingly unstoppable economic power of Japan, Inc. We were all going to have to learn Japanese to survive.

What commentators ignored back then was the demographic challenge Japan faced: not enough children. China faces exactly the same problem in the future. Morever, the one child policy has led to gender imbalances because of the prevalence of abortion as a way of ensuring male children. Who knows what social dysfunctions this will bring. Still further, China ethnic populations numbering in the tens of millions, another source of social problems that may become more and more prominent.

One lesson of modern history has been that rapid changes brought about by economic prosperity has tended to bring social tensions to the fore—thus the extraordinary dislocations and social catastrophes in Europe during the first half of the twentieth century.

Therefore, I’m worried about China, not because I think it will supersede the United States, but because I forsee turmoil, unrest, and potentially explosive social problems.