Out of Control Policy Blog

Is China's Economic Ascendance Inevitable? (Hint: No)

China's economic growth and resilience have been nothing short of remarkable and sobering for the West. I've discussed China's growth on this blog before, and I haven't seen much yet to temper my belief that China's economic ascendance is likely to continue (as I write this blog post from Chongqing, China).

Nevertheless, China's economic and political future is not inevitable, and Joel Kotkin's recent commentary on newgeography.com (8/25/2010) is a very useful starting point for tempering overly optimistic predictions of China's ascendance and America's decline. Joel writes:

"Americans indeed should worry about the prospect of slipping status, but the idée fixe about China's inevitable hegemony--like Japan's two decades ago--could prove greatly exaggerated. Countries generally do not experience hyper-growth--the starting point for many predictions--for long. Eventually costs rise, internal pressures grow and natural limitations brake and can even throw the economy into reverse.

"Instead the U.S. has a decent chance of remaining the world's pre-eminent economy not only over the next decade or two and even by mid-century."

Joel outlines five key challenges that China must overcome if it's growth path is to be secure: 1) an impending water shortage, 2) inadequate sources of fuel for domestic energy (including oil), 3) variable agricultural productivity and food production, 4) an aging and potentially diminishing population, and 5) an economy (and political system) that is not a fully market-oriented system capable of adapting to new needs and demands.

For an example of the last point, Reason Foundation's Shikha Dalmia and Anthony Randazzo's recent commentary on a potential housing bubble in the Wall Street Journal (8/21/2010) is a case in point. While domestic pundits laud China's commitment to "stimulus" (when the economy was still hummingg along at 6-7 percent) neglect to point out the tremendous economic dislocations and misallocations of resources implied in those policies.

Samuel Staley is Research Fellow


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