Where will Chinese GDP end up: At ~US level, or 2-3x the US level?
Very important question – after all, it will determine whether the world will remain unipolar (if China ~= US, the latter will remain dominant thanks to its alliance system and soft power) or “bifurcated” between a US-Western sphere and a Sino-centric one.
Have been gathering predictions on this question (in terms of nominal, not PPP, GDP).
Arguments for why China will not much exceed the US from Thulean Friend:
– China’s growth path cannot be compared to SK/Japan/Taiwan because they paid an extraordinary political price (becoming a US puppet) in order to get the “green light” to pursue some pretty insane protectionist measures, e.g. Korea outright banned car imports in the 1960s. All of them did massive currency manipulation.
– The US tolerated some of this for Beijing as long as it believed that China would essentially end up a Big Taiwan. Playing to US rules/diktats. That obviously didn’t happen so any conciliatory treatment is now out the window unless Deus Ex Machina happens (CCP falls from power etc). That is why extrapolating from SK/Taiwan/Japan is mistaken. The geopolitical situation is radically different. The US and its colonial proxies still largely control the developed world demand for export markets. This is crucial for any developing country, which China still is by any reasonable definition.
– China is a big economy but it is also a huge country. Per capita GDP is only ~$10K. That means it is simply too poor to rely mostly on the domestic market without gorging on debt. Which is what it has been doing.
– TSF (Total Social Financing) is now reaching close to 300% of GDP. Contra clown doomers like Gordon Chang, China isn’t going to collapse. But it will face Japanification, but crucially at much lower income levels.
– China can still add leverage for 10-15 years before really starting to be hit by lower dynamism. So even in my ‘bearish’ scenario, China will continue converging with the West for the time being, but the price paid will be more and more debt. This may not seem like a big deal in these Coronavirus times, but China was adding debt far faster than any Western country in the 2010-2020 period. This was not the case in the 1980-2010 time frame. When a system starts adding huge amounts of debt to grow, it shows you something is broken. This is especially the case when they are still quite poor. By comparison, the Czech Republic’s total debt to GDP(public+private) is half that of China, despite being twice as rich.
– Once China hits this wall, it will not collapse and probably not even fall behind much either. It will stabilise at or slightly above the US GDP and keep pace, but not overtake it further. I predict China will succeed in many of its key objectives (technological self-sufficiency) but it will fail to dislodge the US as the key hegemon. This is because the US controls a huge colonial puppet network which can act as a gigantic force multiplier. China is simply not capable of reproducing that. The US has Germany and Japan; China has Laos, Cambodia, Pakistan. Russia is the only half-decent friendly country to China, but it isn’t as submissive the US colonial subjects are and likely never will be.
– The “final form of China” will be very significant adversary which will have unique capabilities of tharting US imperial policies in its own vicinity but not much outside of it. From Beijing’s perspective, this may be enough. It will be strong enough to avoid being bullied and can go toe-to-toe in its core areas of interest. What happens outside of that area may be less important. China’s rise will thus not significantly affect the balance of power in the MENA region or in LatAm. Nor will Chinese influence supplant US colonial diktat in Europe except in a few stray countries like possibly Serbia or other Balkanoids, which will be the exceptions that prove the rule.
I will end by saying that I hope I am wrong. The world would be a better place if I am. But I have to separate my wishes from my dispassionate analysis.
In particular, see:
- Sinotriumph 101
- Review of Kroeber’s book on Chinese economy addresses many individual arguments (e.g. the question of Chinese debt – it is overwhelmingly internal, so as with Japan, so really more of a book-keeping issue than a genuine long-term growth risk)
One of the pillars of my worldview is the centrality of human capital, as proxied by national IQs, to economic performance. Furthermore, the more optimal that economic systems become, as they have been doing so for decades prior, the fewer gaps we see across different countries in “expected” and “realized” GDPcc. This is because only high IQ nations are capable of maintaining the complex “O-Ring” type processes that separate truly developed/First World nations from the rest. As more and more countries adopt similar “best policy” cocktails, so the underlying human capital differences can be expected to play ever more of a dominant role.
As pertains to China, as can be predicted from its human capital levels, it has been rapidly closing the gap with the developed world, though consistently lagging South Korea and Taiwan by around 20-25 years thanks largely to its prior Maoist lunacies. Considering cultural similarity and broadly analogous human capital levels, we can expect that China will likewise converge to their GDPcc (PPP) levels in another 20 years, with nominal GDP levels catching up soon after, as they usually do when technologically complex countries reach a high level of GDP (PPP).
Now I am highly skeptical that China will become 5x+ as rich as the US (i.e. fully converge or even exceed America in per capita terms), though it needs to be noted that some models, such as Heiner Rindermann’s in Cognitive Capitalism, suggest just that. For reasons that are remain unresolved, the US is considerably richer than naively predicted by its human capital, while the developed East Asian polities (Japan, Taiwan, Korea, etc.) are considerably poorer. I have explored the possible causes of this in National Wealth and IQ at the Edge: American Exceptionalism, East Asian Mediocrity.
However, what I do find striking about it is that many of the factors I identified as possible causes of this “American exceptionalism” are set to move sharply against the US in the following decades:
- The US has long turbocharged its economy by vacuuming up the most vigorous global smart fractions, but its cachet has been plummeting in recent years and if anything is set to accelerate given the neo-Maoist lunacy that has overtaken it. E.g., most Chinese graduate college students in the US began to repatriate as opposed to seeking to stay on about a decade ago now.
- The US has long had high labor mobility by both global and European, but that’s going down now.
- Almost all US population growth from now to 2050 will accrue to lower IQ ethnic groups. Non-Hispanic Whites are in outright natural decline.
- The US dollar’s status as world reserve currency is estimated to tack on an 5-10% in GDP on account of something called “American alpha” (though it is not without its drawbacks). But will it hold this position indefinitely?
- Catastrophic events: There is the chance that either the US or China will be interrupted by a collapse (e.g. state dissolution; civil war), as opposed to their existing trends of decline and rise, respectively. At this point, the likelihood of this must be considered to be higher for the US, even if it remains modest in absolute terms.
Conversely, while many people treat the growth trajectory of South Korea or Taiwan as the utmost “high end” of what China can realistically hope for with its big state sector, I don’t think it’s all that obvious either:
- Although China’s 1.4 billion population is often talked of as a liability – just imagine managing so many people! (no matter that you have corresponding more managers to do it with) – it is in reality a huge asset thanks to the unparalleled economies of scale it opens up. At a very fundamental level, China doesn’t need world markets.
- Maoism was bad, but one thing it did do was destroy old traditional social structures (e.g. Chinese employers don’t feel the same obligations to their workers as Japanese ones). This ironically may make it possible for China to achieve a higher peak GDPcc, all else equal.
- Even within East Asia – why should China’s trajectory necessarily follow that of Korea or Taiwan (at best?). Why not that of Singapore, at least as pertains to its urban regions?
So I would be very surprised if Chinese GDP isn’t at least twice as high as US GDP in 2050. My expectation is that it will more likely be three times as big.
What do my Twitter followers think?
- Starting off with the distribution in the first question, then further subdividing those ranges as per the distributions within the next three questions;
- Taking either midpoints where possible, or substituting guesstimated values for “greater” or “lesser” than (e.g. 90% for those who thought “<100%” and 500% for those who thought “450%+ (richer US per cap)”;
… my Twitter followers think that
- The Chinese economy will be ~214% that of the US in 2050.
- 189% of the US if we instead take logarithmic averages, which is perhaps more appropriate here.
At any rate, they seem to think it will be a very close competition. This seems to reflect consensus opinion – a 2x difference is what the majority of economists (so far as I can tell) expect, and what most of the models I’ve seen suggest.
But economists and their models don’t tend to be IQpilled, their proxies of “human capital” are more often things like “years of schooling” which are much less useful, so it would seem to be a good rule of thumb to adjust their projections for the low IQ countries downwards and for the high IQ countries upwards. Also why you should invest into North Korean stonks whenever it becomes possible.