Year End Edition (2): The Chinese Decade

Written by Julen Madariaga on January 4th, 2010

tiget The Tiger is coming to the surface. The New decade has already come in the West, and in China we are again in this no man’s land between the Solar and the Lunar New Year, between the Bull and the Tiger. It is time to look back and see where we stand.

In World politics time is measured in decades, and many will call the 00s the decade of China. It is just a simplification, these 10 years are nothing but part of a longer process started in 78, and probably still ongoing for another decade more. And yet, if we have to choose one event that marked the decade in World politics, like the end of the Cold War marked the 90s, the rise of China is the most reasonable choice. No other event is likely to be be more decisive in the history of the World.

In the first post of this Year End edition we proved that, within the general growing trend of the decade, 2008 was a peak for China’s presence in the World media, and 2009 has gone back to relatively normal levels. This peak cannot hide the general trend: that China is growing inexorably to become a World superpower and that it is already changing the power balance of humanity.

Measuring the Chinese decade

If we have to chose one single parameter to measure this rise, it is the economy that can give us the best clue. There is no point in going to the decimals when analyzing decade trends, so the calculation is simple: China has grown roughly 7% faster than Western countries in the last decade, and all seems to indicate that this will continue into the 10s.

The calculation* is straightforward:  1.07^10 = 2

At a rate of 7% differential a year, the size of China’s economy relative to the Western economies is doubling every decade. Today most estimates of GDP place China between 1/4 and 1/2 of the USA economy, depending if it is measured in nominal GDP or in PPP. This means that, if nothing else changes in the next decade, Chinese economy will be the biggest in the World anytime between 2020 and 2030.

The consequences of this calculation are enormous, and they are already operating today. That is because in politics we behave like in the stock market: decisions are made taking into account the foreseeable future rather than the present. China is already displacing the EU in World politics, even if it is a fraction of the European economy, even if it doesn’t want to be the protagonist. The media and the politicians are betting on the future value of China.

The Question of the Decade

Of course, nothing guarantees that the growth patterns of the 00s will continue in the 10s. There is one important school of thought that insists on the unsustainability of the Chinese system. They mention corruption, growing inequality, lack of civil rights and a civil society, repression of creativity and free market, the inability to build World class brands and a financial system in disarray, among other problems, to justify their prediction that sooner or later the Chinese economy is bound to crumble.

Those of us who live and work in China know that these problems are serious and very real, and that somewhere down the line there is bound to be a serious readjustment. And yet, the same predictions have been made regularly almost every year in the last three decades, and the collapse has not materialized.

The real question of this decade is When?

Will the Chinese economy stop growing before or after it has become a superpower as large as the USA? Will the Chinese seriously demand more rights and liberties before or after China has become a developed country? Will the economic and political readjustments be done progressively with the new generation of Chinese leaders, or will there be a dangerous explosion in this decade?

We don’t have the answers to this today, and you should not believe any China expert who claims to have them. All we can do is frame the question above, and watch out for early signs to answer it in the coming years.

There is however one statement we can make today. Looking at the World, it is obvious that many important players are already betting on the rise of China, and this view is gathering more support every year. As we have seen above, to the extent that the majority in the World believes in the superpower scenario, China is ALREADY a superpower. The political power comes years in advance of the GDP, and the new World order is already a fact today.

Photo: Eric Risberg

*This is an engineer’s calculation, the nightmare of any serious mathematician. And yet, most bridges we do are still standing, and when we speak of decade trends anything more accurate than this is a joke.

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Comments so far ↓

  1. Jan
    4
    1:11
    PM
    FOARP

    ULN, there is a cottage industry centred around people predicting China’s ‘collapse’ (whatever this is supposed to mean - the fall of the CCP? The end of dictatorship? Civil war?) but what is entirely more likely is that China’s growth will slow as the current driving forces behind it (e.g., mobilising peasant farmers to work in factories) start to peter out.

    Also just as likely is the risk that, as China’s economy grows it will become ever more sensitive to sudden shocks. Neither Taiwan, nor South Korea, nor Japan, experienced run-away growth without also suffering sudden recessions during the later period of their growth. The question is how, without democratic institutions, the CCP will be able to contain the dissatisfaction and desire for change which would spring from such recessions.

    [Reply to this comment]

    Uln Reply:

    1- Yes, I know there are thousands of people predicting collapse every year. That is why I stopped writing about crisis in this blog, it felt like all had been written 1000 times before (this post included).

    2- Regarding the “driving forces peter out” argument, I dont see it that way. The driving forces are not petering out anytime soon, not before China’s GDP per capita is closer to the developed zone, that would take us to 2040 perhaps… I don’t see the problem of forces petering out because I suspect some kind of unsustainable situation will be reached long before the petering out phase.

    [Reply to this comment]

  2. Jan
    4
    3:37
    PM
    JEFF GOH

    You stated:
    “They mention corruption, growing inequality, lack of civil rights and a civil society, repression of creativity and free market, the inability to build World class brands and a financial system in disarray, among other problems, to justify their prediction that sooner or later the Chinese economy is bound to crumble”

    In my view, as like any economy, China’s economy may take a few bumbs but will never crumble.

    The period of industralisation on a national scale was the first stage or first level of China economic growth. Building global brands will propel China in its next phase of growth in conjunction with building its domestic economy. Many may scoff at China’s ability to build global brands but they forget the time other countries took to build theirs. It took 30 years for China to be the production center for the world; no other country has achieved this. It may possibily take only the next 10 years to built its global brands. I would venture to state that white goods and cars from China would probably lead this charge.

    Corruption, inequality, civil rights is a problem and should be eradicated as much as possible, but this is not a problem that is peeve only to China. These problems exist on a global scale in almost every country in the world. USA and many countries in Europe is high on corruption and inequality, not to mention Civil right too. The financial Crash of 2008 is a testimony to this. The super crooks and corruption politicians got away, the public had to carry the toxic waste. China today is not what it was decades and centuries ago. The current leadership has demonstrated its resolve on nation building and knows that they cannot build a nation if corruption is left unchecked and a safety valve released to allow some form of civil rights.

    Free Markets - in reality there isn’t any free markets in the world. The recent rulings on China’s tyres, steel among many other examples in history will attest to this. Rules will change when they become a disadvantage to the makers of these rules. These rules makers may not have that free hand for long.

    In the new decade, the danger for China is to open up completely its finance industry to the super crooks. Though China may have to open to some extend its financial industry, many safe guards have to be in place to check the financial plundering and sabotage of China. This I see as the gravest danger to China’s economy and to bring China three steps backwards. Again I am confident that China’s current leadership is more than aware of this and will know what to do.

    [Reply to this comment]

  3. Jan
    5
    12:29
    PM
    Uln

    I see you are an optimist.

    I find it difficult to believe that in 10 or even 20 years China will have proper global brands. I see structural problems, cultural/social barriers. And the system of the CCP is at least in part responsible for that, not because of corruption (all countries have that) but rather because of its suppression of creativity and initiative.

    That is also what I meant by “free market”, I was not referring to international commerce, but to the overwhelming strength within China of the SOE or semi-SOEs that make it difficult for more creative newcomers to open a way for themselves.

    In any case, I don’t say that China will necessarily crumble, all I say is that there are some readjustments that are needed before it becomes a world class economy, and all will depend on the ability of the CCP to manage the necessary changes.

    I suspect the CCP will lack flexibility to adapt to the necessary changes and will force a difficult situation at some point. But of course this is only guesswork, it is true that in the past they have exceeded all expectations in this point and they might do it again in the future.

    [Reply to this comment]

  4. Jan
    6
    6:29
    AM
    yinbin

    You are right to have hinted that China doesn’t really want to be a “superpower”. China itself has never labeled itself as such. All this frenzy about China has largely been manufactured by Western governments and media. China has always wanted to maintain a low profile in its development. Being put in the spotlight puts China at a disadvantage as it tends to attract animosity from the Western world from which it is ideologically different.

    Will there be a need for “readjustment”? Certainly. Change is a constant, as the cliche goes. China definitely needs to adapt itself to a changing world and its increasingly urbanized population. One hopes that the Chinese government, while remaining authoritarian, will become increasingly “benign”. It is not an oxymoron as it might sound, if one is willing to abandon the assumption that “democratic institutions” are the only means to ensure good governance.

    On the other hand, the chance of any internal revolt is, I believe, very slim. The Chinese society is one that prioritizes the development of the whole society over the rights of the individual. This, coupled with a desire to revive its past-time preeminence, means that despite any possible “dissatisfaction and desire for change”, internal mishaps are unlikely.

    An important obstacle to China’s development is, as Jeff rightly hinted at, the hostility/double standards of the “Western world”. In an apparently borderless world of the trade, the Western governments seem to have no qualms about blocking business deals on political grounds, even though unfettered commerce is the very principle they peddle to the East, when the principle suits their interests, that is. The blockage of China’s attempt to acquire a large chunk of Rio Tinto in 2009 and the United States’ cancellation of a proposed Chinese national oil company’s purchase of American oil company Unocal in 2005 are recent examples that come into mind. These show what a difficult battle China must prepare itself for in a world that is not happy to see it rise.

    [Reply to this comment]

    Uln Reply:

    @yinbin:

    China wants a quiet rise for the reasons you mention, yes. The problem is it’s growing so fast and heading so straight to superpowerdom that it is impossible for the World not to speak about it. I don’t think it is a case of “manufacturing” by the media, it is just natural that people pay attention to the rising star, the World is already betting for China. Today China has already grown too much to be invisible, and in my opinion it is time for the CPC leaders to switch from “ignore” to “actively manipulate” World Media, like all the other powers do.

    Re: Chance of revolt is slim…yes, today. But wait until inflation shoots over the roof and we will see how slim it is then. I’m not saying this will necessarily happen, but just that economic/financial problems can have a very strong effect on societies in very short times. It is realitively easy to keep a country stable at 8% growth and controlled inflation, but the present generation of leaders have still not seen a real economic crisis in China. .

    Regarding the double standards: sure, the West applies double standards but so does China. Altogether today I don’t think the West is being more unfair to China than China is to us (economically, I mean). Or do you think Western investors have free access to Chinese companies?

    [Reply to this comment]

  5. Jan
    7
    4:28
    PM
    yinbin

    Regarding the suggestion for China to actively manage world media, I cannot help wondering if this is even possible, given the ideological difference. I have a strong hunch that due to prejudicial bias, whatever Chinese leaders say (or however they say it) will ipso facto be treated with unusually strong skepticism. That a communist country must be regarded with suspicion is I am afraid accepted thinking in the west. To perceive the world in terms of “us” versus “them” is an unfortunate cognitive deficiency that many have not managed to overcome.

    That said, China’s leaders are indeed quite inept when it comes to communicating with the outside world with effectiveness and charisma. In response to Britain’s condemnation of the execution of a drug runner, the statement made by the Chinese spokeswoman urging Britain to “correct its mistakes” filled me with despair.

    I accept that economic problems can have a potential to destabilize. But what I tried to communicate in my last comment is that there exists deep-seated desire/propensity for “harmony” and unity in the Chinese society. This MIGHT counteract any ill feelings that might lead to internal disaster.

    Lastly, I do not think China could reasonably be accused of practicing double standards in this respect. China has always avowedly practiced “free market with government control”. It is the West that has been proselyting the principle of unfettered trade. Plus, when China acted against such a capitalist principle, it was not mainly out of political considerations. In 2009, China blocked the sale of Huiyuan Juice Group to Coca-Cola. Given that Coca-Cola already accounts for 60 per cent of China’s soft-drink market, this blockage is therefore most likely a preemption of a future monopoly from Coca-Cola. On the other hand, the blocking of China’s attempt to buy the Australian and the US companies was motivated mainly on political paranoia. In the case of Unocal, the argument was that the sale would “threaten to impair the national security of the United States.” In the case of the Australian company, a Straits Times (Singapore) commentary noted that “Commercial considerations about selling a major equity stake to the leading Chinese buyer of iron ore at a time of rising prices were certainly a factor, **but fears about losing control of a prime national resource to a communist government trumped all**.”

    [Reply to this comment]

    Uln Reply:

    Ah, I see what you mean about the double standards. It is true that China has done less free market proselytism than the US, so OK, Western countries are more hypocritical.

    But in the end of the day the result is the same: it is at least as difficult for a Western company to buy a Chinese one as viceversa. Actually, it is more difficult. We have seen many cases of Chinese companies doing important acquisitions, like Lenovo or Bluestar, but very few cases of Western companies acquiring major Chinese ones. Among other reasons, because the vast majority of large Chinese companies are State Owned. Not to mention Chinese Oil companies, which would never ever be allowed to be sold to US company for obvious Security and Strategical reasons (which I can well understand).

    Regarding the fears of a “communist country”, you are right that this triggers some instinctive reactions, especially in the US. But I think China is also partly responsible for it. I mean, come on, why on earth do they continue to call themselves a Communist Country if they have long betrayed every single principle that gives a meaning to Communism?? All there is now in this “Communism with Chinese Characteristics” is a political branding name, nothing more. And it is obvious that this brand name is a loser in international politics today, at least since the early 90s and the fall of the USSR. Communism was tried for almost a century in many countries and never worked, how does it make sense to keep wielding the silly pamphlets of Marx/Lenin/Mao today? Regardless of political inclinations, what credibility does that give to China?

    All this is part of the international PR blindness of the Chinese leaders. They can afford to do it because China is such a large country, but I don’t think it is doing any favour to the economy or to their image in the World. I think it is time for China to start moving a bit in this deparment.

    [Reply to this comment]

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