George Magnus
China's Burgeoning Economy (c) Donna Grethen
Is this the Chinese century, and will
The comprehensive reforms unleashed by
By 2030, on current form,
To answer this question requires impossible foresight. But we should consign linear thinking to spreadsheets, and try to understand the consequences and flashpoints resulting from economic and political processes. From a fairly long list of topics, five seem to stand out:
Ageing Fastest
First, China is an emerging market oddity in demographic terms. It is not the oldest, but it is the fastest ageing country on earth, and by 2050 it will be older than the US on every major demographic measurement. From now on,
The one-child policy is an important, though not the only, factor contributing to this enormous demographic transition. The consequences include slower economic expansion, and growing social problems as a result of chronic gender imbalance. Many wonder whether China will grow old before it gets rich.
To avoid such an outcome, China will simply have to get richer more quickly, but this entails a significant shift in the sources of economic growth - and vested political interests - from companies to consumers, and from coastal provinces to hinterland and rural areas.
Innovation Culture
Second, the demographic transition makes it even more important to sustain high levels of technological achievement. China is a big fish already in the information, low carbon, clean air, and automotive technologies. Among local 'winners' are Baidu, the local Internet search engine with eight hundred million subscribers, Alibaba, the privately owned e-commerce on line retail and cloud computing service,
Nevertheless, using and developing modern technologies is not the same as having a deeply rooted culture of innovation and entrepreneurial transformation. You can certainly create world leadership in the production of screen-based goods and green energy products and processes along the Yangtse Delta, but this is not the equivalent of a
Rights And Law
Third,
In a nutshell, the issue is about whether the Party is willing and able to give citizens political, as well as economic, rights, and whether in today's rapidly modernising economy, rule by law can substitute for rule of law without thwarting or distorting economic development.
Risk of a Bust
Fourth, the government's legitimacy rests on a sort of informal social contract based on the continuous delivery of eight to nine percent economic growth. But a slowdown could occur for a variety of reasons over the next decade and beyond. These include the demographic transition; the exhaustion of past achievements, such as high literacy and school enrolments; high prices for food and raw materials as a result of the country's voracious demand; environmental constraints; and, more immediately, the growing risk of a property and asset bubble produced by excessively loose exchange rate, monetary and credit policies. This is not to argue that
Global Tensions
Fifth,
Japan and several other countries have been concerned about
These geo-political tensions are liable to get in the way of high levels of international economic cooperation and mutually beneficial policies. In the last two years, increasing trade protectionism has been one of the consequences, and more recently, currency wars, restraints over the movement of capital, and blatant acts of corporate protectionism.
If the G20 group of developed and emerging countries, but especially the G2 nations, America and China, are unable to reverse this tide and establish a proper framework to address their contrasting interests, no one would be a winner. But the economic and political consequences for China would come as a rude shock to the consensus.
In 2012, China will change its leaders, and US voters will have the opportunity to do the same. The challenges faced by the world's largest creditor and debtor nations, separately and together, are equally significant.
George Magnus, Senior Economic Adviser, UBS Investment Bank and Author,
'Uprising: Will Emerging Markets Shape or Shake the World Economy'
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