Chinese GDP in 2050: the Debate

[Tomasz + 1,608]

Of course, this is not my work below, but I found this post interesting enough that I am posting it on the oilprice forum. 

Because its very important question – after all, it will determine whether the world will remain unipolar (if China ~= US, the latter will remain dominant thanks to its alliance system and soft power) or “bifurcated” between a US-Western sphere and a Sino-centric one.

Where will Chinese GDP end up: At ~US level, or 2-3x the US level?

https://www.unz.com/akarlin/chinese-gdp-in-2050-the-debate/

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First arguments for why China will not much exceed the US

– China’s growth path cannot be compared to SK/Japan/Taiwan because they paid an extraordinary political price (becoming a US puppet) in order to get the “green light” to pursue some pretty insane protectionist measures, e.g. Korea outright banned car imports in the 1960s. All of them did massive currency manipulation.

– The US tolerated some of this for Beijing as long as it believed that China would essentially end up a Big Taiwan. Playing to US rules/diktats. That obviously didn’t happen so any conciliatory treatment is now out the window unless Deus Ex Machina happens (CCP falls from power etc). That is why extrapolating from SK/Taiwan/Japan is mistaken. The geopolitical situation is radically different. The US and its colonial proxies still largely control the developed world demand for export markets. This is crucial for any developing country, which China still is by any reasonable definition.

– China is a big economy but it is also a huge country. Per capita GDP is only ~$10K. That means it is simply too poor to rely mostly on the domestic market without gorging on debt. Which is what it has been doing.

– TSF (Total Social Financing) is now reaching close to 300% of GDP. Contra clown doomers like Gordon Chang, China isn’t going to collapse. But it will face Japanification, but crucially at much lower income levels.

– China can still add leverage for 10-15 years before really starting to be hit by lower dynamism. So even in my ‘bearish’ scenario, China will continue converging with the West for the time being, but the price paid will be more and more debt. This may not seem like a big deal in these Coronavirus times, but China was adding debt far faster than any Western country in the 2010-2020 period. This was not the case in the 1980-2010 time frame. When a system starts adding huge amounts of debt to grow, it shows you something is broken. This is especially the case when they are still quite poor. By comparison, the Czech Republic’s total debt to GDP(public+private) is half that of China, despite being twice as rich.

– Once China hits this wall, it will not collapse and probably not even fall behind much either. It will stabilise at or slightly above the US GDP and keep pace, but not overtake it further. I predict China will succeed in many of its key objectives (technological self-sufficiency) but it will fail to dislodge the US as the key hegemon. This is because the US controls a huge colonial puppet network which can act as a gigantic force multiplier. China is simply not capable of reproducing that. The US has Germany and Japan; China has Laos, Cambodia, Pakistan. Russia is the only half-decent friendly country to China, but it isn’t as submissive the US colonial subjects are and likely never will be.

– The “final form of China” will be very significant adversary which will have unique capabilities of tharting US imperial policies in its own vicinity but not much outside of it. From Beijing’s perspective, this may be enough. It will be strong enough to avoid being bullied and can go toe-to-toe in its core areas of interest. What happens outside of that area may be less important. China’s rise will thus not significantly affect the balance of power in the MENA region or in LatAm. Nor will Chinese influence supplant US colonial diktat in Europe except in a few stray countries like possibly Serbia or other Balkanoids, which will be the exceptions that prove the rule.

Now prochinese arguments
Let’s take the standard assumption that national power consists of three main elements: Economic, military, and cultural (“soft”).

Why can we be confident that China is on its way to superpowerdom?

Economic Power

China has already overtaken the US in terms of GDP (PPP) in the mid-2010s at the latest {here’s my 2012 article on this}, and will almost certainly repeat that in nominal terms by the early 2020s.

Chinese development is extremely similar to South Korea’s but with a lag of 20 years {East Asia’s Twenty Year Rule}. Consequently, a China that converges to South Korean development levels in relative terms – something that we can expect to see by 2040 – will automatically be three times the size of the US economy just by dint of its demographic preponderance. This is furthermore assuming that there is no serious US economic crisis during this period (e.g. there are estimates that US GDP is 5-10% more than it “should be” thanks to the USD’s status as the global reserve currency – what happens if/when that ends?).

There is absolutely no reason why this process of convergence must stall at any point, since average IQ explains almost all economic success, and Chinese IQ is comparable to those of the most developed OECD nations. To be sure, as I pointed out, developed East Asian nations tend to underperform their IQ; they are only as rich as European countries about 5 IQ points below them, such as France (in contrast, the Americans over perform their average IQ, probably thanks to their smart fractions, the USD’s status, and economies of scale). Nonetheless, this does mean that the average EU level is eminently reachable. And it is even possible that China will eventually do relatively better than Japan or Korea because of the unparalleled economies of scale opened up to it by its 1.4 billion population.

As China continues to develop, its economy will likewise continue getting more and more sophisticated – as of this year, it has twice as many industrial robots as the entirety of North America, and more supercomputers than the US. {China Overtakes US in Scientific Articles, Robots, Supercomputers}

Hence the utter stupidity of comparisons to the 1980s American scare over Japan. China is not the next Japan – it is the next TEN Japans {2011 article on Top 10 Sinophobe Myths}.

Military Power

Military power is primarily a function of economic power. This is a relation that is so obvious and well-established that it barely needs further elaboration.

Chinese military spending is currently at a third of the US level, but it is soaring rapidly and – as in Russia – getting more bang for the buck due to China’s lower labor costs and large share of domestic armaments production. It is also seeing rapid technological convergence in key military technologies. Once this process is finished, it will be free to start engaging in a massive buildup, without the risk of its military falling into obsolescence. This is already happening: PLAN is slated to have more ships than the USN by 2030.

On my projections, comprehensive Chinese military power should exceed that of the US by the early 2030s, and Chinese naval power should overtake the US by the early 2040s – and this is under the assumption that China continued to spend a significantly lower percentage of its GDP than the US {Comprehensive Military Power}.

It’s also worth pointing out that as a Eurasian power connected to the rest of the World-Island through OBOR, and possessing unsinkable aircraft carriers in the form of its artificial islands in the South China Sea, China is less absolutely dependent on its Navy for its military security than the US. While China has been ballyhooed for its lack of power projection capability. As it happens, China recently announced plans to produce 1,000 Y-20 strategic heavy lift airplanes, which will eventually give it strategic airlift capacities well in excess of that of the US.

The fact that China is not (yet) throwing its weight around means absolutely nothing. “Lying low and not taking the lead” was a conscious approach formulated by Deng Xiaoping, and one that that has paid off handsomely to date. There is extremely little point to be had from forcing a confrontation when you are effortlessly and massively gaining in relative power on your potential adversaries with each passing year, at least so long as your red lines aren’t crossed (e.g. recognition of Taiwanese independence).

Cultural Power

According to the Nature Index, a proxy for high quality science production, China is now 50% – up from 25% five years ago, when the index was launched – as productive as the US, and far ahead of everyone else. Now I actually agree with China pessimists that the Chinese, or rather East Asians in general, are more conformist than Europeans, which limits creativity {Coffee Salon Demographics}. Japan’s and Korea’s underperform relative to their IQ on elite science even more than they do on GDP per capita. Nonetheless, even if China were to attain just the per capita performance of Japan and South Korea, it would still generate around 50% more elite level science than the US. By analogy with Japanese and Korean experience, I expect to happen by the 2030s.

I am more skeptical about China’s potential to be competitive in the cultural sphere. English is the world’s lingua franca, and will remain so for the foreseeable future. Its literary, film, and video game output is derivative and uninspiring. They can’t even create a good state-owned propaganda channel – how many Westerners watch/read CCTV relative to RT? It is only in the past decade that Japan has started generating significant cultural power, a generation after they became rich. By extension, I suspect we may have to wait for the second half of the century for a Chinese cultural renaissance.

TLDR

Even assuming no disruptive developments in the United States, such as a catastrophic unwinding of the dollar or secessionism provoked by ideological polarization, the emergence of China as the world’s preeminent superpower by the middle of the 21st century is near inevitable. It is a mere derivative of its demographic preponderance, and the close relation between national IQ and socio-economic development (buttressed by the prior experience of South Korea).

By the 2040s, China will have by far the world’s largest economy in both PPP-adjusted and nominal terms (2-3x that of the United States), its most powerful military, and comparable naval power and elite scientific production. However, it should still lag the US in cultural productivity. China will only truly regain its mantle as the Celestial Empire in the second half of the 21st century.

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• Review of Kroeber’s book on Chinese economy addresses many individual arguments (e.g. the question of Chinese debt – it is overwhelmingly internal, so as with Japan, so really more of a book-keeping issue than a genuine long-term growth risk)

One of the pillars of my worldview is the centrality of human capital, as proxied by national IQs, to economic performance. Furthermore, the more optimal that economic systems become, as they have been doing so for decades prior, the fewer gaps we see across different countries in “expected” and “realized” GDPcc. This is because only high IQ nations are capable of maintaining the complex “O-Ring” type processes that separate truly developed/First World nations from the rest. As more and more countries adopt similar “best policy” cocktails, so the underlying human capital differences can be expected to play ever more of a dominant role.

As pertains to China, as can be predicted from its human capital levels, it has been rapidly closing the gap with the developed world, though consistently lagging South Korea and Taiwan by around 20-25 years thanks largely to its prior Maoist lunacies. Considering cultural similarity and broadly analogous human capital levels, we can expect that China will likewise converge to their GDPcc (PPP) levels in another 20 years, with nominal GDP levels catching up soon after, as they usually do when technologically complex countries reach a high level of GDP (PPP).

Now I am highly skeptical that China will become 5x+ as rich as the US (i.e. fully converge or even exceed America in per capita terms), though it needs to be noted that some models, such as Heiner Rindermann’s in Cognitive Capitalism, suggest just that. For reasons that are remain unresolved, the US is considerably richer than naively predicted by its human capital, while the developed East Asian polities (Japan, Taiwan, Korea, etc.) are considerably poorer. I have explored the possible causes of this in National Wealth and IQ at the Edge: American Exceptionalism, East Asian Mediocrity.

However, what I do find striking about it is that many of the factors I identified as possible causes of this “American exceptionalism” are set to move sharply against the US in the following decades:

• The US has long turbocharged its economy by vacuuming up the most vigorous global smart fractions, but its cachet has been plummeting in recent years and if anything is set to accelerate given the neo-Maoist lunacy that has overtaken it. E.g., most Chinese graduate college students in the US began to repatriate as opposed to seeking to stay on about a decade ago now.
• The US has long had high labor mobility by both global and European, but that’s going down now.
• Almost all US population growth from now to 2050 will accrue to lower IQ ethnic groups. Non-Hispanic Whites are in outright natural decline.
• The US dollar’s status as world reserve currency is estimated to tack on an 5-10% in GDP on account of something called “American alpha” (though it is not without its drawbacks). But will it hold this position indefinitely?
• Catastrophic events: There is the chance that either the US or China will be interrupted by a collapse (e.g. state dissolution; civil war), as opposed to their existing trends of decline and rise, respectively. At this point, the likelihood of this must be considered to be higher for the US, even if it remains modest in absolute terms.

Conversely, while many people treat the growth trajectory of South Korea or Taiwan as the utmost “high end” of what China can realistically hope for with its big state sector, I don’t think it’s all that obvious either:

• Although China’s 1.4 billion population is often talked of as a liability – just imagine managing so many people! (no matter that you have corresponding more managers to do it with) – it is in reality a huge asset thanks to the unparalleled economies of scale it opens up. At a very fundamental level, China doesn’t need world markets.
• Maoism was bad, but one thing it did do was destroy old traditional social structures (e.g. Chinese employers don’t feel the same obligations to their workers as Japanese ones). This ironically may make it possible for China to achieve a higher peak GDPcc, all else equal.
• Even within East Asia – why should China’s trajectory necessarily follow that of Korea or Taiwan (at best?). Why not that of Singapore, at least as pertains to its urban regions?

So I would be very surprised if Chinese GDP isn’t at least twice as high as US GDP in 2050. My expectation is that it will more likely be three times as big.

 

Edited November 21, 2020 by Tomasz