China's amazing run must come to an end
Will the 21st century belong to China? For a while, perhaps - but only in the sense that it was said to belong to Japan in the 1980s. Looking back now that seems ridiculous but, at the time, best-selling books were predicting that the rest of the planet would be reduced to virtual serfdom by the relentless high-speed growth of the Japanese economy. Then it stopped growing.
Official data reveal that China's economy has overtaken Japan's this year, making it the second-biggest economy in the world. This followed last month's announcement by the International Energy Agency that China is now the world's biggest consumer of energy. If the average growth rates of the US and Chinese economies over the past quarter of a century continue for another 10 years (around 10 per cent for China, and 3 per cent for the US), then China's economy will be bigger than that of the US.
But hang on. China is already the world's second-biggest importer of energy (mostly oil and coal), and its biggest importer of minerals and other industrial raw materials. None of those resources is growing at 10 per cent a year. If China's imports of those goods grow at 10 per cent a year, then the share of other countries must shrink.
China still has an export-led economy, and these other countries are its customers. If commodity prices soar, because of Chinese demand, then how will those other countries earn the money to pay for Chinese goods? So Chinese growth must eventually slow - but when?
The straight-line projection of current trends would make the Chinese economy bigger than that of the US by 2020. But most economic consultancies now suggest China will not overtake the US until some time between 2027 and 2030.
That implicitly assumes that China will shift to a much lower annual rate of growth in the near future: to only 5 or 6 per cent. However, no organisation that is making money from the current orgy wants to spoil the party by spelling out what might cause that decline - so let us do it here.
Back in 1988, the last year of Japan's 30-year boom, the land in the garden of the Imperial Palace in Tokyo was allegedly worth more than the state of California, but that was just another way of saying 'unsustainable property bubble'. The bubble duly burst, bringing down the entire Japanese economy with it - and it has stayed down for the past 22 years.
The property bubble in China is reaching similar dimensions. There is huge overinvestment in China. The population is ageing almost as fast as Japan's. If the same inputs tend to produce the same outputs, then the Chinese economy is in big trouble.
That doesn't necessarily mean China also faces two decades of less than 2 per cent growth. It does probably mean it faces a very nasty slump, followed by the transition to a permanently lower rate of growth. Not so terrible, really. But it may threaten the regime's survival, since its popularity depends almost entirely on its record in delivering the economic goods.
Gwynne Dyer is a London-based independent journalist whose articles are published in 45 countries