China's ascendancy delayed, but only by a scant few years | South China Morning Post
  • Thu
  • Mar 26, 2015
  • Updated: 12:57am
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

BIO

As the writer of the South China Morning Post’s Monitor column, Tom Holland attempts each day to make sense of the latest developments in business, finance and economic affairs in Hong Kong and mainland China.
 

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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