China: Central Planning Stymied By Reality

[Valin]

Strategy Page:

December 1, 2016:

 

GDP growth has been slowing since 2010 and that trend will continue. This is mostly about how the decades of development are over. Most of the missing (because China did not go through the Industrial Revolution until the late 20 th century) infrastructure (road, ports, dams, utilities, housing) have now been built and, because of government corruption, often overbuilt. China is putting up impressive economic numbers but not enough of the ones that count. For example, a better (but less used) measure of economic strength is how much of the national wealth is in private hands (where it is more efficiently managed). Thus while China makes much of its GDP (at $11 trillion second only to the American $18 trillion) and the prospects of Chinese GDP eventually surpassing the U.S., they are now losing ground when it comes to privately controlled wealth ($23.4 trillion versus $84.8 trillion).

 

Moreover the real strength of the Chinese economy is production for domestic consumption. Starting in the 1980s, China set the economy free to finally get through Industrial Revolution (which most Western nations underwent in the 1800s) with little state interference. As happened in the West, this leads to explosive growth and problems with pollution and raw materials shortages. This makes China's neighbors nervous, because that's where lots of the raw materials come from, and some of the pollution (industrial waste) can go to. Currently, China boasts of having the largest economy on the planet by the 2030s. Reality tends to be what happens while you’re making other plans.

 

China’s problems have worldwide impact. In 2014 Chinese economic growth was 38 percent of the world total and the Chinese economy (now the second largest in the world) accounted for 15 percent of global economic activity. While the United States is rather well insulated from Chinese economic problems, most of the world is not. This is particularly true of Asian nations, which depend a lot more on China as a buyer of their goods. For any country China is more important as a customer than as a supplier and economists in and out of China see Chinese economic growth in decline for the rest of the decade and probably longer. While this will not slow down the Chinese military buildup much at all, it will make Chinese leaders more concerned about peace at home than military backed expansion abroad. Chinese leaders are acutely aware of Chinese history and the lessons it provides. Despite being a police state the Chinese leadership knows that in the past censorship and lots of armed men have not prevented massive unrest that brought down seemingly unassailable governments. Even if the uprisings failed, like the 19th century Taiping Rebellion that left 20 million dead did, the aftermath can leave the government too weak to hold the country together. That’s the kind of damage the Taiping Rebellion did and led to a century of civil war, foreign invasion and the destruction of the ancient imperial system. The communists see themselves as the saviors of China for bringing China back to world primacy, a position it previously held for thousands of years. Before the Western industrial revolution the Chinese economy had usually (over thousands of years) been the wealthiest on the planet. Restoring China to its traditional roles as an economic and military power is still very popular with most Chinese and worth taking extreme measures (like replacing the current government) to hold onto.

 

While generations of Chinese have made enormous sacrifices to get this far, there is less enthusiasm to suffer more simply to allow corrupt officials (most of them members of the ruling Chinese Communist Party) to get rich or to get away with past crimes. The current situation is also something quite new in Chinese history; a large, powerful and assertive middle class that is not willing to tolerate threats to their recently achieved economic status...............(Snip)