Continuing with our discussion of how the competition for international influence and geopolitical climate will evolve in the coming decades and century, it’s worth examining some of the key drivers of economic growth and international influence.
In the last blog post in this series, we discussed how recent actions by the central government in China can have major long-term implications for their economic growth. These actions include their increasingly hostile and hands-on approach to the private sector. Remember how Jack Ma disappeared for months after he made critical remarks about the Chinese government? , or Didi having to de-list from the New York Stock Exchange a week after listing there? why did they have to do that? Because they ran afoul of the Communist party’s plans. In the West, that would, of course, be unthinkable! Government can not force companies to do anything unless they have engaged in criminal activities. If there are civil disagreements between the government and private companies, there are courts of law that settle those disputes.
China’s other headwinds include its deteriorating demographics (Figure.) The nation’s low-birth rate means its population is likely to peak in size before the end of the decade. That means declining number of the Chinese in the workforce and increased resources having to be devoted to the care of a massive population of the elderly.
Forecasts for China overtaking US as the largest economy in the next 10 years are predicated on the assumption that China will be able to deliver a big enough increase in productivity and capital spending to offset the demographic drag—and while that’s possible, it’s far from guaranteed. Well, increase in productivity will require a dynamic economy that fosters innovation and attracts great talent. If the increasingly aggressive government stance toward the private sector in recent years is any indication, we can expect a flight of talent and ideas out of China. Entrepreneurs who feel threatened and lose decision-making power over their ideas and businesses may choose to pursue their ideas elsewhere, like in US!
Also, the Chinese economy is saddled with high levels of debt and overcapacity in key sectors, which will make additional government spending less productive to their long-term growth. Although none of this means that China’s growth will definitely stall in the coming years or decades, they are key trends to keep an eye on as they have historically been harbingers of trouble ahead.
One thing that is for sure is that China has defied gloomy expectations and the laws of economic gravity so far. We examined some of the possible explanations for this in a recent post (large population with much low hanging fruit, significant central government investments, interventions in private sector that avoided short-term disaster but created potential long-term issues.) Whether they continue to do so remains to be seen but one of these days the force of gravity will catch up to them!!