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  • Oct 25, 2014
  • Updated: 7:42am
Monitor
PUBLISHED : Friday, 09 August, 2013, 12:00am
UPDATED : Friday, 09 August, 2013, 2:47am

China's ascendancy delayed, but only by a scant few years

Even with growth slowing to 4.5pc under the mainland’s economic rebalancing, the US looks at best likely to cling on to top spot until 2030

Garnet Wolseley was the very model of a 19th-century imperialist. As a young officer in the British army, he fought in Burma, where he picked up a limp, and in Russia, where he lost an eye.

He helped crush the Indian mutiny - or the 1857 Indian war of independence, as you prefer - and was at the sacking of the Summer Palace during the second opium war.

As a commander, he put down a rebellion in Canada, defeated the war-like Ashanti in what is now Ghana, conquered Egypt and invaded the Sudan.

But Wolseley was no mere thug. In many ways he was remarkably far-sighted. He believed in the then revolutionary notion that military officers should be promoted on merit, not according to wealth and breeding. He described journalists as "a curse … who do no work at all".

And despite all he did to build and maintain the British empire, he was under no illusions about its durability. Writing in 1903 after a career spanning 50 years and at the apogee of British power, Wolseley contemplated the rise of the United States, which he noted "is fast becoming the greatest power of the world".

Yet not even US dominance would endure. "The Chinese", he wrote, "are the most remarkable race on earth, and I have always thought, and still believe them to be, the coming rulers of the world. They only want a Chinese Peter the Great or Napoleon to make them so.

"In my idle speculation upon this world's future I have long selected them as the combatants on one side of the great Battle of Armageddon, the people of the United States of America being their opponents."

Whether it's because we are more enlightened and peaceable, or just because we have hydrogen bombs, these days we tend not to judge great powers in terms of sheer military might, but rather by their economic strength.

By that yardstick, the US still enjoys global primacy. But so severe was the US financial crisis, and so rapid has been China's ascent over recent years, that many forecasters have predicted that Asia's emerging superpower will overtake its Western rival before the current decade is out.

As economists have realised ... extrapolating past trends into the future is unrealistic

Indeed, if both the US and China were to continue growing for the foreseeable future at the same average rate as over the last 10 years, with the same rates of inflation, and with the yuan strengthening against the US dollar at the same rate, China would overhaul the US in terms of economic output as soon as 2017 (see the first chart).

Yet, as economists have realised over the last couple of years, simply extrapolating past trends into the future is deeply unrealistic.

With US economic activity now showing signs of picking up, and China at last slowing down, it looks as if China's ascendancy will be delayed.

How long is anyone's guess. But let's assume that the US maintains its current pace of growth for the next couple of years, before returning to its long-term trend rate of 2.5 per cent while hitting the Federal Reserve's inflation target.

And let's assume China keeps up its current 7.5 per cent growth rate this year and next, before slowing to the 4.5 per cent rate consistent with rebalancing, with economy-wide inflation picking up to 2 per cent and yuan appreciation slowing to just 1 per cent a year.

That might sound like a drastic slowdown, but as the second chart shows, it will only delay China's rise to the top of the world's economic super-league until 2030.

Wolseley would not have approved. Pondering the future eclipse of British power by the US, he drew some comfort. "Thank Heaven they speak English, are governed by an English system of laws, and profess the same regard that we have for what both understand as fair play."

But as the classically educated field marshal would no doubt have noted: Sic transit gloria mundi.

tom.holland@scmp.com

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shouken
A host of contingencies made the rise in North America of the United States possible, and their model cannot be reproduced even in old Europe, let alone the densely populated countries of China, India or even Japan. Seeing China as representing "evil" whereas the United States embodying "good" is not credible and as such is a misleading notion. Both the Chinese as well as the US governments try to rule and serve their people well. In the process some people (vested interests, the 1-2%) will benefit inordinately than most others in both countries (the corrupt elements in China and the dominance of the Wall Street in the US), producing a widening income gap and social inequality and possible dwindling social mobility in their respective societies. Good vs. Evil? None, not a single government in this wide wide world, is simply good or evil, not even the current Egyptian government. White vs. Black, good vs. evil, as characterizations of governments, are suitable for war-mongerers and hawks and teenagers.
dunndavid
Paul Krugman (a very competent economist and a really mediocre political analyst) has pointed out that countries only grow in a few ways. 1. They can increase the proportion they invest. If an economy moves from investing very little to investing more, economic progress will result everything, else being equal. 2. Increasing the skill levels of the work force also helps to increase the productivity of the society and economic growth tends to result. This is sometimes confused with education. Graduating increasing numbers Medieval French Poetry grads probably doesn't help the economy much, but welders and engineers certainly might. 3. A country can increase their proportion of those in the workforce. Taking people out of the countryside where they are barely working into a job in an urban area increases the effective workforce. 4. You can increase the innovation in society. Finding better ways to do things. It appears that China has reached it's limits in terms of the first 3. More money as a percentage can't be invested. The labor force increasing has enough education although quality and allocation are certainly issues. The size of the labor force in relative terms is now likely to shrink. The society is aging & there isn't much slack rural labor capacity either. As for innovation China may not be able to produce much with so much of the economic state-owned. It looks to me that China's growth might not just slow but rather grind to a halt. More like Brazil 1970 than Korea.
lucifer
"with rebalancing?"
...this is monumental task that is going to take decades, not years. China will also need to transform its instiutions, legal system and policial system if it was to bear the fruits of its large population and economy.
The change will not be automatic and not without sacrafice. There are so many obstacles to increasing household consumption, first those issues have to be addressed in a meaningful way, not with policy fiats. The way China exists today will be the biggest hidderence to incresing domestic consumption. The reforms need will require the Party to losoen its grip on the economy and on power....how likely is that?
Dictatting reforms that are never effecuated does nothing, but give the Party leadership bullet points. Will CHina be able to rise to the next level? How can it inovate without a legal system that can protect IP? How can people consume more if their fears of the futre are not reduced? How can citizens be expected to consume more when the financial system by design, decreases their wealth? The problems are so numerous only a fool would think the Party's magic powers can fix this one overnight. It took the US nearly a century to systematically increase household consumption to present levels and that included two world wars, a depression and a subsequent manufacturing boom to support the baby boomers and the rebuilding of Europe. These kinds of predictions will likely fall flat, no matter how many years out they go.
pslhk
TH, indeed
Sic transit gloria mundi
But what are the main factors
that would cause the envisaged turn
you didn't say
-
Even if China is to become the next US
there certainly will be the next China
Wolseley hasn’t thrilled me as
it should motivate all Chinese to enedavor
to get China up there sooner
and stay high longer
with magnanimity and integrity
for the welfare of mankind
pslhk
GW would probably change his opinion
if he were to take scholarism, Civic Party members
Occupiers and the like bananas
as representative "Chinese" samples
caractacus
Tom, your analysis is fallacious. The world isn't all about making money, far less. China may appear to be the coming dominant power, but its rise has been driven by investment of international capital released by deregulation since the era of Thatcher and Reagan, a most misguided and short sighted policy. No new scientific invention has come out of China since the 15th century. They like to believe that their recent success has been because of their native superiority, but this is another fallacy supported and maintained by centuries of racist propaganda and prejudice taught to children at the hearth. As in many other things, the truth is that China's growth has come about because of foreign investment, foreign technology and foreign know - how. Capital has no morality and money does not choose the company it keeps. The deregulation of the capital markets has meant that China has benefited because it was the cheapest place to produce goods, but no longer, and at what a price to the world! A racist dictatorship has been empowered by the stupidity that profit rules all. Lenin said "the capitalists will one day sell us the rope we shall use to hang them".
It is now a battle between good and evil systems of government and unless the Chinese can really learn that other races have an equal right to fair treatment, in the coming decades the world will once again turn against Chinese arrogant conceit and selfishness and put it down again and again, as in 1841, 1860 and 1900.
babyhenry
Your ability to twist history to put the blame on the victims instead of the racist, arrogant, thieving western powers in the 19th century is certainly shocking.
But thanks, anyone with a right mind will realize you are just a racist Chinese hating **** with or without the CCP coming to power or not.
sienna.lai
sorry babyhenry but as a chinese I have to go along with caractacus .. and that of statistical historical fact. Facts will always remain facts, regardless of human opinion. ;-)
bolshoi
@babyhenry
Obviously this caractacus character has got cataract... and perhaps senile dementia too. ;)
It's a tongue twister, isn't it? :)
John Adams
Caractacus - I think it's your analysis that is fallacious.
Money and capitalism is 'all' - for right or for wrong (usually for wrong, I personally think) and the USA has lead the world in that that "philosophy" for the past 100 years, and the British before them..
China is just catching up .
And if the West chooses to call China hypocritical in its governance( which I agree it often is) , one has to look no further than Edward Snowden to see it's the pot calling the kettle black.
Two wrongs don't make a right, but until and unless the West truly leads by example, China will never learn
I therefore agree that Wolseley got it right when he said :
"The Chinese are the most remarkable race on earth, and I have always thought, and still believe them to be, the coming rulers of the world" .

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