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China’s Obstacle Race

January 25, 2019

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The Dragon Awakes

China’s emergence as a global economic power has been spectacular and enthralling.  Back in 1977, when Chairman Mao Zedong died, China’s GDP per capita was $185.  40 years later it is $8,836.  From 1979 to 2010, China enjoyed annual average GDP growth of 9.9%. China’s economy overtook Italy in 2000, France in 2005, the UK in 2006, Germany in 2007 and Japan in 2010. In 2017 GDP by expenditure stood at $12.84 trillion, second only to the USA.  Using Purchasing Power Parity (PPP) it overtook the USA in 2014.

As a manufacturer and net exporter, China enjoyed a trade surplus of $323 billion in 2018. And China is – true to the classic development model followed by Asian tigers Japan and South Korea – moving through the gears from basic manufacturing, through assembling parts, to cutting edge technology and innovation.  On 3 January, Chang’e 4became the first spacecraft to land on the far side of the moon.  On 15 January it was announced that the craft had germinated a cotton seed on the moon’s surface.  There may be more surprises to come.  It would be quite likely that the next person to walk on the moon’s surface will be Chinese: the first non-American to do so.

And China is investing in its future.  In 2017 40% of global investment in artificial intelligence was made in China – even more than the USA (34%) – those two tech powers leaving the rest of the world with a residual 26%.  China has invested massively in its own infrastructure, and its Belt and Road initiative is designed to link China, through Asia and the Middle East to Europe and Africa.  China is funding deep-sea ports in Asia and Africa, pipelines in Central Asia, and upgrading rail and road links in Africa.  It is now possible to travel by train from Beijing to Barking.

The Chinese Century?

Just as the 19th century was dominated by Britain – the first industrial nation – and the 20th by the USA, will the 21st century be dominated by China?  A continuation of the trends outlined above would suggest it might.

What Could Possibly Go Wrong?

Here at SAMI, we know that forecasting the future is a pretty chancy activity.  Better by far to develop scenarios that set out different ways in which the future might take shape.  Looking at China, we see plenty of evidence to suggest that China’s path in the rest of the century may not be entirely serene.  Indeed as far back as 2006, we identified, in a report for the City of London, some potential risks ahead.

Having peaked in 2030, China’s population is projected to go into decline, falling to 1.36 billion by 2050, and then projected to go on falling back to 1.0 billion by the end of the century.  And the population will be aging.  Median age, currently 38.7, is projected to rise to 48.0 by 2050, and go on rising thereafter.  As the population rises, so the ratio of workers to retirees will fall from the current, very favourable 5:1, to as low as 2:1.  The total population figure hides an imbalance, with 116 males to every 100 females.  This declining and aging population will contrast with neighbours such as India and Indonesia, and even more starkly with Africa, whose population is projected to have doubled between 2000 and 2050, and – according to UN projections – may do so again by 2100.

China’s ethnic minorities make up just 8.5% of the population, but in a large geographical spread of Western China, principally Tibet and Xinjiang, minorities make up the majority of the population.  To date China has been successful (and ruthless) in minimising dissent in these regions, but the potential for future conflicts should not be ignored.

The additional tensions of centrally managing a vast country should not be ignored.  Harsh and all-pervasive central control carries an inherent potential for implosion – the disintegration of the Soviet Union being an example of which the Chinese Communist Party is all too well aware.  As the economic differences between the industrial core cities and the countryside becomes increasingly stark, and as those cities themselves develop, the demand for increasing local autonomy and independence from the centre may become too strong to be ignored.

China has benefited from the globalisation of trade, with that global trade surplus of some $325 billion.  The rise of protectionism – especially in the USA – represents a threat to the prospect of continuing high levels of growth.  The Belt and Road initiative has seen China achieving great influence in countries in Asia (Burma and Sri Lanka, for example) and sub-Saharan Africa.  But there have also been signals that this influence could itself become a bone of contention, with resistance in some countries to alleged economic colonialism, and concerns in other countries about the extent of Chinese power, particularly in South East Asia.

The rise to economic dominance may come with a rise in military challenge.  The development of small atolls into heavily defended military bases in the South China Sea and beyond combined with the reluctance of other military powers to cede zones of influence and, particularly, rights to access international waters, will lead to a rise in military tension – especially with US allies.  Japan especially is making significant changes to its military and constitutional attitude to war.

Taken together with the domestic impact of the aging of its population, these threats to China’s economy and stability could see a steady downward pressure on economic growth. China is fully aware of these future risks, indeed they help to explain the urgency with which she is investing in infrastructure at home, in technology, and in building alliances overseas and developing in military power. It may be, though, that these trends combined are beyond even the Party’s ability to control.

Written by David Lye, SAMI Fellow and Director

The views expressed are those of the author and not necessarily of SAMI Consulting.

SAMI Consulting was founded in 1989 by Shell and St Andrews University. They have undertaken scenario planning projects for a wide range of UK and international organisations. Their core skill is providing the link between futures research and strategy.

If you enjoyed this blog from SAMI Consulting, the home of scenario planning, please sign up for our monthly newsletter at newreader@samiconsulting.co.uk and/or browse our website at http://www.samiconsulting.co.uk

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