Facing China’s Problems

Joseph Nye looks below the surface of China’s growing economy:

In the coming decades, China’s GDP growth will slow, as occurs in all economies once they reach a certain level of development – usually the per capita income level, in PPP terms, that China is approaching. After all, China cannot rely on imported technologies and cheap labor to support growth forever. The Harvard economists Lant Pritchett and Lawrence Summers have concluded that regression to the mean would place Chinese growth at 3.9% for the next two decades.

But this straightforward statistical estimate does not account for the serious problems that China must address in the coming years, such as rising inequality between rural and urban areas and between coastal and inland regions. Other major challenges include a bloated and inefficient state sector, environmental degradation, massive internal migration, an inadequate social safety net, corruption, and weak rule of law.

Moreover, China will face increasingly adverse demographic conditions. After enforcing a one-child policy for more than three decades, China’s labor force is set to peak in 2016, with elderly

Nearly ten years ago I wrote a series of lengthy, researched posts on the challenges facing China which include the environment, demographics, its financial system, and the lack of a rule of law. At the time I was quite optimistic.

Over the intervening decade all of those problems have become worse. The only conclusion I can draw is that China’s ruling elite sees no way to solve China’s problems without weakening their own hold on the country. They’ve decided to run the ship right onto the reef and then escape to the villas they’ve purchased around the world, many here in the United States.

It’s a sad situation. We Americans have many problems but I’d rather hold our hand than the hand held by the Chinese. What we and much of the world should be considering is how to mitigate the risks posed by a deteriorating China.