Perhaps the biggest question facing the world economy and geopolitics right now is whether China will supplant the US as the global superpower. As Beijing prepares to open the Olympic Games, a bigger competition is already under way. Certainly, I believe that China is the only country that can realistically challenge US hegemony. All other rivals are too weak. The EU is too fragmented ever to come up with a coherent foreign and defence policy; Russia faces severe demographic decline, as does Japan, which is too small and insular; India is too poor and focused on its own domestic development. Only China has the population, wealth, unity and will to challenge the US.

Yet for all the talk of China’s rise, I am sceptical that it can displace the US as the global superpower by 2050, or even for some years after that.

Why China Won’t Overtake The US

• Firstly, I am not convinced that forecasts by some investment banks that China will overtake the US in GDP by the early 2040s are realistic. In absolute terms, US GDP is generally increasing faster than China’s. The US is probably capable of sustaining 2-3% annual GDP for many years to come, but China’s GDP is likely to slow sharply over the next generation. In dollar terms, China’s GDP will need a much stronger yuan to increase its size. Yet there is no guarantee that they will allow this.
• Secondly, even if China’s GDP overtakes the US by 2040, the average American will be much richer (in terms of GDP per capita) than the average Chinese. The US will thus be a far more appealing place to live, and will continue to attract immigrants, which will keep its population young and bring in new talent. On the lifestyle front, China’s much higher population density than the US will preclude the spacious lifestyle that Americans enjoy.
• Thirdly, China’s demographics look poor, with its working age population set to peak in the next decade or so. The US is also ageing, but its substantial Latino population will keep it young. Rising incomes and aspirations among US Latinos effectively make them an emerging market within a developed state. China of course has its 800mn+ peasants, but they are far less wealthy than US Latinos. Overall, I believe that 500mn+ Americans could still maintain an economic edge over 1.5bn Chinese by the mid-21^st century.
• Fourthly, although China is raising defence spending to build a powerful military, it does not have the global power projection abilities of the US. The US has 12 aircraft carrier battle groups, whereas China has none. It would take years to match this. In addition, the US military is a least a generation ahead of most others, and will probably maintain this lead, given its high levels of defence spending.
• Fifthly, the US continues to capture the world’s imagination through its films, television programmes, pop music, and the use of its English language (‘soft power’). Yet where is China’s Britney Spears? (or insert your own favourite icon.) It is certainly true that Japan’s and South Korea’s popular culture has made great strides and is well-received in Asia, but even Japan has not been able to overtake the US as a global soft power. China has 10 times’ Japan’s population, and thus 10 times’ bigger a talent pool, but the complexity of the Mandarin language (which is not even universally spoken in China) would seem to suggest that it is unlikely to replace English as the global lingua franca.

Rising China Could Lead To Anti-Chinese-ism

China’s rise gives it a great opportunity to earn international goodwill, especially from developing nations. However, as it rises, China could attract increasing criticism over the following topics:

• Tibet and human rights: This will leave China a bête noire in the eyes of global liberals. China is an anomaly, in that it is the only major economy in the world that is not democratic.
• Xinjiang: The repression of Muslims there could lead to greater criticism of China from the Islamic world.
• Africa: China is already under fire for supporting Sudan and Zimbabwe. African countries currently benefiting from Chinese investment could become disillusioned if China fails to transfer skills and technology to locals.
• Environment: China will continue to attract criticism over its carbon emissions.

All this is already happening, even though China is not yet even a superpower. Were China to become one, we would expect several neighbouring countries, such as India, Russia, and Japan, to become increasingly nervous, and possibly co-operate in containing China’s influence. True, China actually has a much less interventionist track record abroad than the US, having not attacked a foreign country since 1979 (Vietnam), but it has not ruled out an invasion of Taiwan, a democratic entity. While some would regard such a move as an internal Chinese affair, a naked display of force would frighten many into the arms of the US/NATO. This could speed up the (re) emergence of a bipolar world.

The bottom line is that while I expect China to become a major power over the coming years, I do not see it displacing the US from its perch.

Posted in: China, Commodities, General, Geopolitics, Political Risk
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