August 10, 2012

China's Future Prospects

In "Superpower Denied? Why China’s ‘Rise’ May Have Already Peaked," Minxin Pei readily admits the fools-errand aspect of forecasting the future of a country like China but he does an admirable job of outlining the numerous pressures on China and the problems China will have to resolve if it hopes to sustain its rise. As I have mentioned many times in the past, demographic trends have a tremendous impact on nations but because they evolve so slowly that are little noticed by people dealing with the cares of everyday living.

China's problems are many and include environmental, public health, terrific income disparity, ethnic tensions, rampant corruption, political fragility and statism, real estate bubble/speculation, massive amounts of 'bad loans' hidden on state controlled bank ledgers, a toxic business climate for foreign interests, and growing tensions with regional neighbors among many others. Does the U.S. have its own problems? Most certainly. As Pei points out, however, a nation's strength is a relative thing that must account for the status of other countries with which it competes or may be effected.

Our system as a whole--free market enterprise, representative democracy, a business climate that spurs and rewards entrepreneurialism and innovation--and the wealth of domestically-owned natural resources places us in a very advantageous position vis-a-vis China. China's history, especially while under Communist rule, does not bode well for its future.

China's situation reminds me of a runner who has not built a proper base for endurance then attempts to 'run with the big dogs'. China has made an all-out attempt to sprint to the front of the pack and by some accounts has made a solid mark in growth and the creation of a middle class. But like the ill-prepared athlete, it will have a very, very hard time maintaining its pace and meeting the growing expectations of its population. Many of the market reforms put into place by earlier leaders are being undone for the current set. I expect China will fade back into the pack since the burst of activity that vaulted it into its current position consumed the resources available and didn't account for the reality of its situation: a rapidly aging population, a skewed worker base, an eroding landscape quickly turning to desert, an economy (and whole cities) built upon false assumptions and brought into being by fiat vice true market growth, and a political framework that restrains and even punishes the very energy and creativity needed for a people and a country to grow.

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