China and The Chicken Little Syndrome

[Fresh Prince]

A Long Wait at the Gate to Greatness

By John Pomfret
Sunday, July 27, 2008; B01


Nikita Khrushchev said the Soviet Union would bury us, but these days, everybody seems to think that China is the one wielding the shovel. The People's Republic is on the march -- economically, militarily, even ideologically. Economists expect its GDP to surpass America's by 2025; its submarine fleet is reportedly growing five times faster than Washington's; even its capitalist authoritarianism is called a real alternative to the West's liberal democracy. China, the drumbeat goes, is poised to become the 800-pound gorilla of the international system, ready to dominate the 21st century the way the United States dominated the 20th.

Except that it's not.

Ever since I returned to the United States in 2004 from my last posting to China, as this newspaper's Beijing bureau chief, I've been struck by the breathless way we talk about that country. So often, our perceptions of the place have more to do with how we look at ourselves than with what's actually happening over there. Worried about the U.S. education system? China's becomes a model. Fretting about our military readiness? China's missiles pose a threat. Concerned about slipping U.S. global influence? China seems ready to take our place.

But is China really going to be another superpower? I doubt it.

It's not that I'm a China-basher, like those who predict its collapse because they despise its system and assume that it will go the way of the Soviet Union. I first went to China in 1980 as a student, and I've followed its remarkable transformation over the past 28 years. I met my wife there and call it a second home. I'm hardly expecting China to implode. But its dream of dominating the century isn't going to become a reality anytime soon.

Too many constraints are built into the country's social, economic and political systems. For four big reasons -- dire demographics, an overrated economy, an environment under siege and an ideology that doesn't travel well -- China is more likely to remain the muscle-bound adolescent of the international system than to become the master of the world.

In the West, China is known as "the factory to the world," the land of unlimited labor where millions are eager to leave the hardscrabble countryside for a chance to tighten screws in microwaves or assemble Apple's latest gizmo. If the country is going to rise to superpowerdom, says conventional wisdom, it will do so on the back of its massive workforce.

But there's a hitch: China's demographics stink. No country is aging faster than the People's Republic, which is on track to become the first nation in the world to get old before it gets rich. Because of the Communist Party's notorious one-child-per-family policy, the average number of children born to a Chinese woman has dropped from 5.8 in the 1970s to 1.8 today -- below the rate of 2.1 that would keep the population stable. Meanwhile, life expectancy has shot up, from just 35 in 1949 to more than 73 today. Economists worry that as the working-age population shrinks, labor costs will rise, significantly eroding one of China's key competitive advantages.

Worse, Chinese demographers such as Li Jianmin of Nankai University now predict a crisis in dealing with China's elderly, a group that will balloon from 100 million people older than 60 today to 334 million by 2050, including a staggering 100 million age 80 or older. How will China care for them? With pensions? Fewer than 30 percent of China's urban dwellers have them, and none of the country's 700 million farmers do. And China's state-funded pension system makes Social Security look like Fort Knox. Nicholas Eberstadt, a demographer and economist at the American Enterprise Institute, calls China's demographic time bomb "a slow-motion humanitarian tragedy in the making" that will "probably require a rewrite of the narrative of the rising China."

I count myself lucky to have witnessed China's economic rise first-hand and seen its successes etched on the bodies of my Chinese classmates. When I first met them in the early 1980s, my fellow students were hard and thin as rails; when I found them again almost 20 years later, they proudly sported what the Chinese call the "boss belly." They now golfed and lolled around in swanky saunas.

But in our exuberance over these incredible economic changes, we seem to have forgotten that past performance doesn't guarantee future results. Not a month goes by without some Washington think tank crowing that China's economy is overtaking America's. The Carnegie Endowment for International Peace is the latest, predicting earlier this month that the Chinese economy would be twice the size of ours by the middle of the century.

There are two problems with predictions like these. First, in the universe where these reports are generated, China's graphs always go up, never down. Second, while the documents may include some nuance, it vanishes when the studies are reported to the rest of us.

One important nuance we keep forgetting is the sheer size of China's population: about 1.3 billion, more than four times that of the United States. China should have a big economy. But on a per capita basis, the country isn't a dragon; it's a medium-size lizard, sitting in 109th place on the International Monetary Fund's World Economic Outlook Database, squarely between Swaziland and Morocco. China's economy is large, but its average living standard is low, and it will stay that way for a very long time, even assuming that the economy continues to grow at impressive rates.

The big number wheeled out to prove that China is eating our economic lunch is the U.S. trade deficit with China, which last year hit $256 billion. But again, where's the missing nuance? Nearly 60 percent of China's total exports are churned out by companies not owned by Chinese (including plenty of U.S. ones). When it comes to high-tech exports such as computers and electronic goods, 89 percent of China's exports come from non-Chinese-owned companies. China is part of the global system, but it's still the low-cost assembly and manufacturing part -- and foreign, not Chinese, firms are reaping the lion's share of the profits.

When my family and I left China in 2004, we moved to Los Angeles, the smog capital of the United States. No sooner had we set foot in southern California than my son's asthma attacks and chronic chest infections -- so worryingly frequent in Beijing -- stopped. When people asked me why we'd moved to L.A., I started joking, "For the air."

China's environmental woes are no joke. This year, China will surpass the United States as the world's No. 1 emitter of greenhouse gases. It continues to be the largest depleter of the ozone layer. And it's the largest polluter of the Pacific Ocean. But in the accepted China narrative, the country's environmental problems will merely mean a few breathing complications for the odd sprinter at the Beijing games. In fact, they could block the country's rise.

The problem is huge: Sixteen of the world's 20 most polluted cities are in China, 70 percent of the country's lakes and rivers are polluted, and half the population lacks clean drinking water. The constant smoggy haze over northern China diminishes crop yields. By 2030, the nation will face a water shortage equal to the amount it consumes today; factories in the northwest have already been forced out of business because there just isn't any water. Even Chinese government economists estimate that environmental troubles shave 10 percent off the country's gross domestic product each year. Somehow, though, the effect this calamity is having on China's rise doesn't quite register in the West .

And then there's "Kung Fu Panda." That Hollywood movie embodies the final reason why China won't be a superpower: Beijing's animating ideas just aren't that animating.

In recent years, we've been bombarded with articles and books about China's rising global ideological influence. (One typical title: "Charm Offensive: How China's Soft Power Is Transforming the World.") These works portray China's model -- a one-party state with a juggernaut economy -- as highly attractive to elites in many developing nations, although China's dreary current crop of acolytes (Zimbabwe, Burma and Sudan) don't amount to much of a threat.

But consider the case of the high-kicking panda who uses ancient Chinese teachings to turn himself into a kung fu warrior. That recent Hollywood smash broke Chinese box-office records -- and caused no end of hand-wringing among the country's glitterati. "The film's protagonist is China's national treasure, and all the elements are Chinese, but why didn't we make such a film?" Wu Jiang, president of the China National Peking Opera Company, told the official New China News Agency.

The content may be Chinese, but the irreverence and creativity of "Kung Fu Panda" are 100 percent American. That highlights another weakness in the argument about China's inevitable rise: The place remains an authoritarian state run by a party that limits the free flow of information, stifles ingenuity and doesn't understand how to self-correct. Blockbusters don't grow out of the barrel of a gun. Neither do superpowers in the age of globalization.

And yet we seem to revel in overestimating China. One recent evening, I was at a party where a senior aide to a Democratic senator was discussing the business deal earlier this year in which a Chinese state-owned investment company had bought a big chunk of the Blackstone Group, a U.S. investment firm. The Chinese company has lost more than $1 billion, but the aide wouldn't believe that it was just a bum investment. "It's got to be part of a broader plan," she insisted. "It's China."

I tried to convince her otherwise. I don't think I succeeded.

http://www.washingtonpost.com/wp-dyn/content/article/2008/07/25/AR2008072502255_pf.html

[Vizzys]

good read, thx

[BobFromPikeCreek]

 

[Hollywood]

China sucks. Communism is doomed to fail. There's only what - four countries in the world using it at a system anymore? China is taking advantage of a sort of "industrial revolution." As US industries move to cheaper labor, China's taken advantage. Thing is, that doesn't last. Like the article said, most of the exports by foreign, including the US, countries.

As the population's age rises, the labor system will collapse on itself with that combination. The US has moved beyond an industrial economy. It's working on on an technological economy. Maybe other countries MAKE the products, but its here where the idea and product plans come up. China is like our slave system, like the old confederacy days.

That's a pretty good post from a drunk guy, on China's economic system. Nay, GREAT post.

[Madrun Badrun]

"China's environmental woes are no joke. This year, China will surpass the United States as the world's No. 1 emitter of greenhouse gases. It continues to be the largest depleter of the ozone layer. And it's the largest polluter of the Pacific Ocean. But in the accepted China narrative, the country's environmental problems will merely mean a few breathing complications for the odd sprinter at the Beijing games. In fact, they could block the country's rise."

Some one needs to tell this guy that greenhouse gasses have nothing to do with ozone depletion. 

[Great Rumbler]

"China's environmental woes are no joke. This year, China will surpass the United States as the world's No. 1 emitter of greenhouse gases. It continues to be the largest depleter of the ozone layer. And it's the largest polluter of the Pacific Ocean. But in the accepted China narrative, the country's environmental problems will merely mean a few breathing complications for the odd sprinter at the Beijing games. In fact, they could block the country's rise."

Some one needs to tell this guy that greenhouse gasses have nothing to do with ozone depletion. 

I think those are supposed to be two separate thoughts.

[Madrun Badrun]

Now that I read it that way you're probably right. 

[Joe Molotov]

And then there's "Kung Fu Panda." That Hollywood movie embodies the final reason why China won't be a superpower: Beijing's animating ideas just aren't that animating.

The Hell?

China can't break free of their reliance on foreign Hollywood movies.   

[Phoenix Dark]

America>Communism

how many times do we have to prove it

[MrAngryFace]

Thanks for this; good read.

[laesperanzapaz]

fascinating, and unique insight, i appreciate it

that said, i remain suspicious of china and hateful of communism

[Fresh Prince]

I think it's a good article if China continues to operate as it. But clearly some things can be changed through policy such as the one child policy, a weakening of the pension system and introduction of a 401k or superannuation scheme and more stringent environmental and water policy.

However the Chinese 'broadly'  are happy because of the rapid growth of the economy and any of the above policy changes would have a decline on the immediate growth of China even if they were better in the long term. If something went really wrong I think we would see more than rural peasants rallying against corrupt officials in the capital.

I too sort of fell for the Chinese Century but it occurred to me that you can't be the 'best' of everything as I think the Chinese Government want to be. I mean take the US car industry for a time they had the capital, resources and the need to have cars as passionate as the Italians, the technically proficient as the Germans and as reliable as the Japanese but they failed. Innovation can't be stolen, bought or copied. 

[Flannel Boy]

China should have a big economy. But on a per capita basis, the country isn't a dragon; it's a medium-size lizard, sitting in 109th place on the International Monetary Fund's World Economic Outlook Database, squarely between Swaziland and Morocco.

And? China's per capita GDP may not be very high, but it's much higher than it used to be (thirty years ago it was around $200 and now it's over $5000) and it continues to grow at a fast rate.

[Fresh Prince]

That's if the world economy doesn't go into recession or even if it slows down substantially: which is the same for most countries.

[Madrun Badrun]

That's if the world economy doesn't go into recession or even if it slows down substantially: which is the same for most countries.

Can the entire world economy go into recession? 

[Flannel Boy]

That's if the world economy doesn't go into recession or even if it slows down substantially: which is the same for most countries.

Right, recessions can affect all nations. However, the article was talking about the 21st century, so it's better to look at long term trends, and not short term blips.

[Fresh Prince]

Can the entire world economy go into recession? 

Okay maybe not the entire world but most of it I guess. I'm not sure though I'm not a historian or economist.

Right, recessions can affect all nations. However, the article was talking about the 21st century, so it's better to look at long term trends, and not short term blips.

Well the trend is upwards no doubt but by how much?

[Flannel Boy]

Global recessions happen; it all depends on how they're defined. However, without looking at the data, I'm sure the world economy contracted by a lot in 1929. So if global depressions happen, why not recessions.



I think China's per capita GDP has been growing at around 10% per year for a while now.

[chronovore]

Great article. Thanks for the up.

[Emperor Kenjiro]

Should have just let us finish them off in the 30s/40s.

[Akala]

Americans just hate China because America doesn't make anything anymore, and we are losing the ability to. China is the main offender, but it could just as easily be India or even Russia.

I honestly don't buy the point the article makes about the Chinese state not getting the lion's share of the profit from most of their endeavors, but their system is kind of primed for collapse.

Also, the problem of having too many non-productive elderly is pretty easily remedied in a socialist state.

[Boogie]

Should have just let us finish them off in the 30s/40s.

Ah hell, who let you in here?

[Fresh Prince]

Americans just hate China because America doesn't make anything anymore, and we are losing the ability to. China is the main offender, but it could just as easily be India or even Russia.
I honestly don't buy the point the article makes about the Chinese state not getting the lion's share of the profit from most of their endeavors, but their system is kind of primed for collapse.
Also, the problem of having too many non-productive elderly is pretty easily remedied in a socialist state.

Manufacturing to be honest is not a big deal economically speaking since it doesn't have high profits. Politically it is because it provides employment and as well for 'manufacturing security'. IP and service based industries are really what's important and this is what China acknowledges hence building name brand recognition etc. 
Like I said earlier some of these problems can be solved with policy but will the Chinese government do so for some short term pain?

[Brehvolution]

Too many people.

Not enough sustainable earth.

Oh wait.... Wind and sun.

Fuck it, let's just burn the oil.

[Akala]

Manufacturing to be honest is not a big deal economically speaking since it doesn't have high profits. Politically it is because it provides employment and as well for 'manufacturing security'. IP and service based industries are really what's important and this is what China acknowledges hence building name brand recognition etc. 
Like I said earlier some of these problems can be solved with policy but will the Chinese government do so for some short term pain?

Well yeah, there is obviously a reason we shifted from a manufacturing society to one of service, but has it ever really happened historically? Capitalism being what it is, what is to stop manufacturing countries from analyzing the point when it becomes pretty much impossible for us to deny a cost increase? I've actually been thinking of the current geoplitical climate more recently, for the first time since college and/or Bush's re-election got me out of politics.

I wonder what the limits of our consumer culture are, and what would tip the scales.