It may look powerful, but the republic has troubles that make its future—and ours—uncertainby George Magnus / November 17, 2010 / Leave a comment
Published in December 2010 issue of Prospect Magazine
The central business district of Guangzhou flourishes, but future prosperity is not assured
It seems to many that the Chinese century has arrived. China has become the hub of a globally integrated manufacturing supply chain, the world’s biggest export and creditor nation, and the second biggest economic power in terms of GDP. In the coming decade, its growth could make its GDP larger than that of the US, and raise its income per head from $3,700 to around $13,000. Yet it is premature to conclude that China will soon be the top global superpower.
First, China’s development has reached the point where a new round of extensive economic, social, and most likely political reforms are needed to propel the country forward. (David Cameron timidly pointed to this during his recent visit.) Compared to the market reforms begun in 1978, after the death of Mao, these reforms may be more disruptive, more threatening to the Communist party’s dominance, and more challenging to the generally weak quality of China’s institutions.
Second, while China’s rise is widely admired, it is also viewed with suspicion—not only in the west, but also by India and other nations in Asia, who will try to place obstacles in China’s path.
One large obstacle is the global financial crisis. In rich nations, which still account for some three fifths of world output, an era of austerity is descending. The monetary value of their GDP may now only expand by around 3 per cent per year over the next decade, compared with twice that rate in the long boom before the crisis. This will constitute a big economic shock to China’s export economy. Like a bungee jump, production has bounced up again since the bottom of the 2009 crash—but this is merely a bounce after a long fall.
Moreover, if western debtor nations, including the US and Britain, are obliged to reduce private and public debt, the global system will only work smoothly if China, the wo…