Peak China?
As economists, politicians, and analysts across the globe have observed the meteoric rise of the Chinese economy, a great many questions have arisen: What did the Chinese Communist Party do that the rest of the world was unable to do? What was the most significant factor that contributed to its unprecedented rate of economic growth? Was it China’s large population? China is the fifth largest country in the world, did Chinese producers simply have more access to land and natural resources than its competitors? Maybe they had a secret business or economic strategy that had gone undiscovered or untapped by other global academics.
Whatever the answers to these questions, China’s modern economic and trade dominance is undeniable and nigh unquestionable. But amid the rapid industrialization that catapulted China to the silver-medal spot among the world’s largest economies and delivered 800 million of its people from poverty, one simple question has evaded the minds of those same economists, politicians, and analysts that is slowly earning the spotlight in the foreign policy world: Where and when does it all end?
Experts are increasingly agreeing that the arrival of “Peak China” may come sooner than was originally predicted. China’s expected takeover as the world’s largest economy, what I argue is not only the final stroke in China’s economic Cinderella story but a marker of a vast shift in the global balance of power, was expected to take place in 2026, according to a 2011 report by Goldman Sachs. According to The Economist, that same investment firm now predicts that China will not surpass the United States until 2035. Furthermore, Goldman once predicted that the Chinese economy, once dominant, would grow to become 50% larger; it is now projected to peak at a level 36% smaller than originally forecast, at 14%. But firms like Goldman Sachs tend to take for granted that the Chinese economy will overtake the United States at some point in the future, no matter how long it takes or how large the peak will be—other firms are less optimistic. The same 2023 Economist briefing describes the position of the research firm Capital Economics, which believes that China will never earn the GDP gold medal. Instead, it will reach critical mass at 90% the size of the American economy, and then even lose ground.
These trends open up a wide variety of new questions for economic analysts to explore, chief among which is—what happened? A few factors are crucial in understanding this current trend. First among them is China’s population. China, like other Asian countries, including Japan and South Korea, is facing a concerning decline in its birth rate. The infamous “one-child policy” in law from 1980 to 2015 ensured that China experienced a birth rate of around 1 for over 30 years, which is less than half the rate demography experts state is necessary to keep a population growing. More and more individuals in China’s population of over 1 billion are aging, and not enough children are being born to replace them. When these people retire, they are no longer contributing to the economy, and the spending on healthcare and pension further slows the economy down.
Beijing’s response to the COVID-19 pandemic hasn’t helped things, either. In response to the pandemic, China enacted a range of policies under the umbrella of “Zero COVID” that, as Adam S. Posen writes for Foreign Affairs, “suppressed demand, hampered manufacturing, roiled supply lines, and produced the most significant slowdown that the country’s economy had seen since pro-market reforms began in the late 1970s.” This slowdown was expected to end with the pandemic that spurred the policies, with GDP growth expected to return to normal levels or even speed up, but such was not the case. Shockingly, GDP was in decline.
The economic problems don’t stop there. Xi Jinping, President of China and Chairman of the Chinese Communist Party, has been on an increasingly autocratic streak in the last few years. He has faced scrutiny in the international community for his suppression of dissent, seen most notably in his crackdown on lockdown protests in cities like Shanghai. He has relocated significant numbers of Uyghur Muslims into re-education camps. Community activities and local groups are under more surveillance than ever and are monitored closely by authorities, to paraphrase Ian Johnson. This culture of stringent surveillance, along with Byzantine regulations on industry and innovation, has led to a “brain dump” away from China and into other less strict countries like the United States. Less innovation, and then a decrease in economic productivity that is further slowing Chinese economic growth, is posing a significant challenge to the Chinese government.
What is the United States to do? It is very possible that, if these trends grow to concerning levels that put the future of China as an economic and military superpower into question, Beijing may lash out before it’s too late. Particularly with concern to its long-term goals like the reunification of Taiwan with the mainland, China may seek to use its military advantage over the other Asian nations (and even the United States, in terms of the number of available naval ships) to retake the island before it no longer has the economic capacity to do so.
However, I think this possibility is unlikely. The statistics I have cited throughout this article are gloomy, yes, but they don’t predict the collapse of the Chinese state—simply a slowdown of the economy, not a decline and fall. Instead, economists are looking to China, particularly the CCP, and hoping that President Xi will do something to spur economic growth, decrease the national debt, and encourage the birth of more children to contribute to the economy. Instead, the United States should continue its targeted economic sanction on the Chinese economy, particularly those outlined in the CHIPS and Science Act, which aims to rejuvenate the American semiconductor industry. This legislation was assisted by the National Defense Authorization Act, which prohibits U.S. government agencies from procuring products or services containing semiconductors manufactured by China’s leading chip companies.
If the United States continues to be strict with the Chinese, while continuing to trade with them to boost its own economy (in the words of the Biden Administration, “Building a high fence around a small yard”), it can use the negative trends seen in the Chinese economy and maintain its gold-medal spot on the world stage.