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CHINA IN 2020A New Type of Superpower
By HU ANGANG
BROOKINGS INSTITUTION PRESSCopyright © 2011 THE BROOKINGS INSTITUTION
All right reserved.
Chapter OneChina, an Emerging Superpower
One of the great events of the past three decades has been the rapid rise of the People's Republic of China (PRC). China's quick ascent into the ranks of great powers not only outstripped the expectations of the international community but has also far surpassed the Chinese government's own expectations. If calculated using official constant prices, China's aggregate GDP in 2009 was 18.6 times that of 1978, meaning that the economy averaged an annual growth rate of 9.9 percent over that thirty-one-year time span. Over the same period, per capita GDP grew at an average of 8.7 percent a year, leaving it 13.3 times larger in 2009 than it was in 1978. If we employ the exchange rate method of calculating GDP, China is the second-largest economic power in the world, falling behind only the United States. Purchasing power parity (PPP) calculations of GDP place China second only to the United States. If economic clout is assessed according to merchandise exports, then China surpassed Germany in 2009, to assume the number one position.
Even though China's import and export throughput has decreased and its economic growth in general slowed in the wake of the global financial crisis, there has been no change to the country's general trend of industrialization and urbanization. Indeed, the forces of neoliberal market economics, in tandem with the information revolution of modern globalization, have continued to sweep across China, paving the way for a strong 9.1 percent economic growth in 2009. With much of the world still mired in economic decline, China was the only country to attain such a high rate of GDP expansion. Clearly, China's rate and scope of development merit the superlative "economic miracle" so often bestowed upon it by outside observers.
Despite China's successful development over the past thirty years, skeptics never tire of questioning the country's economic health. Such fallacies as "China's GDP bubble" and "the China collapse theory" have been popularized by those who doubt the foundations and the sustainability of the PRC's economic development. The tremendous success of China's political, economic, and social development has also aroused great concern in the West, where one scholar (reflecting the opinions of many) regards China as "the biggest potential ideological competitor to liberal democratic capitalism since the collapse of Soviet Union." One Western analyst goes so far as to claim that "what China has achieved in the last couple of decades legitimately lays siege to many of our most deeply held notions about the realities of government and economics."
Certainly China's transformation has generated a host of questions: Is China really rising? Can China attain a sustainable position as an economic powerhouse for the years and decades ahead? How might this be accomplished? What is the difference between the economy of China and developed economies such as those in Europe, the United States, and Japan? Will China soon emerge as the world's newest superpower? If so, how will this change the world's economic and political landscapes? This book attempts to answer these and related questions.
This opening chapter briefly surveys a variety of forecasts of China's future formulated by institutions and scholars outside of the PRC. It also explicates how to interpret the trajectory of China's economic development and provides an explanation for China's rapid rise. Finally, it provides a brief overview of the book's remaining chapters.
Forecasting China's Future: Foreign Perspectives and Literature Review
Over the past three decades China has experienced the most rapid economic rise the world has seen. In 1983 the World Bank issued its first report on socialist China. The report predicted that China's economy would maintain an annual growth rate of about 45 percent in the first half of the 1980s, expanding at a clip of 56 percent (the world average in the 1970s) during the latter half of the decade. Two years later the World Bank released a second report, titled China: Long-Term Development Issues and Options. This time, the World Bank predicted that China's economy would grow at a rate of 5.4 to 6.6 percent between 1981 and 2000. In reality, China's economy grew at an annual rate of 9.9 percent during that period, far exceeding these estimates. As of the year 2000 China's total GDP was 78.5 percent larger than predicted by the World Bank. In other words, the World Bank had vastly underestimated China's potential for economic growth.
In 1986 John King Fairbank, a professor at Harvard and a leading American sinologist, posited that from a historical perspective China was likely to continue its pattern of following the successful establishment of a new governing authority with a period of great construction. His words proved prescient. After the first generation of leadership, led by Mao Zedong, founded the PRC, the next generation of leadership, led by Deng Xiaoping, launched an ambitious program of economic reform and opening. Deng's efforts ushered in a still-unfurling period of great construction and development.
In 1987 the Yale professor and famous American historian Paul Kennedy expressed great optimism regarding the future of China's development. In his book The Rise and Fall of the Great Powers, he noted that China was both the poorest of the major powers and a country not particularly well situated strategically. And yet, despite these challenges, he recognized that Chinese leaders were in the midst of implementing a grand, ideologically consistent, and far-sighted strategy. As a result, he predicted that if China could maintain 8 percent GDP growth, tremendous changes could take place in the ensuing years.
In 1988 President Richard Nixon, in his book 1999: Victory without War, predicted that the world would be defined by a multipolar political, economic, and military structure after the collapse of the cold war system of bipolarity. He declared that after the onset of the twenty-first century the dominant positions of the United States and the Soviet Union would decline, allowing the three geopolitical giants Europe, Japan, and China to rise. He also noted that the reforms initiated by Deng Xiaoping had liberated the huge potential of the Chinese people, a group that constituted a fifth of the world's population. He then boldly predicted that if China continued along the road paved by Deng Xiaoping, the world would eventually enter an era with three superpowers: the United States, the Soviet Union, and China. Later developments would prove Nixon right in some respects but wrong in others. The importance of geopolitics for Europe and Japan actually decreased, and the Soviet Union dissolved. Indeed, by 2008 Russia's economic strength was only 14.4 percent of China's and 13.5 percent of that of the Unites States. With the decline of the Soviet Union, the United States emerged as the world's sole superpower. In the long run, however, Nixon's predictions relating to China proved prophetic, as it rose to emerging superpower status in the early years of the twenty-first century.
Through the 1990s China did not halt reform and opening because of the June 4 incident at Tiananmen Square. Nor did the drastic changes in Eastern Europe and the disintegration of the former Soviet Union prompt China to change its political orientation. Instead, China continued to build economic momentum. Over time, this aroused concern in many quarters and inspired members of the international community to make a variety of predictions regarding China's future. For instance, a Rand Corporation report released in 1995 predicted that China's GDP would grow 4.9 percent annually from 1994 to 2015, surpassing the United States in 2006 and growing to 1.27 times that of the United States by 2015 (using PPP calculations as the standard). Per capita GDP would also grow but would only reach 28.9 percent of U.S. per capita GDP.
In 1997 the World Bank issued another report, China 2020, which consists of a very bullish appraisal of China.
China is in the midst of two historic transitions: from a rural, agricultural society to an urban, industrial one and from a command economy to a market-based one. The interplay and synergy between these two transitions have sparked rapid growth. The Chinese economy expanded more than fourfold in the past fifteen years. In the rich industrial economies this transition took centuries. In China the process is being telescoped into one or two generations.
The report calls China's transformation "the most remarkable development of our time." In this volume the World Bank admits that the projections of its past reports tend to underestimate growth, often substantially. The report goes on to predict that Chinese GDP growth in the period 19952000 would be 8.4 percent, with growth from 2001 to 2010 averaging 6.9 percent a year.
Yet again the World Bank underestimates China's growth potential. In the years 1995 to 2000 China's GDP grew at an average annual rate of 8.5 percent, increasing to 10.7 percent between 2001 and 2009. If GDP is computed using the PPP method, China's total GDP will far outpace the United States by 2020, with per capita GDP reaching half the U.S. figure by then. In addition, China's total purchasing power could overtake Europe's and may begin to compete with industrialized countries as a capital provider and recipient in the world's financial markets. In 2009 China surpassed Germany to become the world's largest exporter. It also became the world's second-largest importer, trailing only the United States.
In 1997 the Asian Development Bank published Emerging Asia: Changes and Challenges, a report outlining three possible scenarios for China's future economic development. According to the optimistic scenario, China's per capita GDP would grow by 6.6 percent annually from 1995 to 2025. The pessimistic scenario held that per capita GDP would grow at 4.4 percent over this period. The middle-of-the-road scenario predicted that per capita GDP would grow at 6.05 percent annually. The report concluded, based on the middle-of-the-road scenario, that by 2025 China's per capita GDP would be 38.2 percent of U.S. per capita GDP.
Not all foreign growth projections for China have been wrong. In 1998 the British economic historian Angus Maddison made what he called "a considerably conservative prediction" regarding China's future growth, stating that China's annual GDP (PPP) growth would drop from 7.5 percent, the 197895 average, to 5.5 percent for the period 1995-2010. He also predicted that per capita GDP growth rates would drop to 4.5 percent a year, from 6.04 percent. Despite this slowdown, he projected that China's aggregate GDP would surpass that of the United States by 2015 and come to account for 17.4 percent of the world total (with U.S. GDP accounting for 17.3 percent). Few Chinese academics found his claims credible. To my knowledge, Maddison is the only scholar who accurately forecast the year that China's total GDP would overtake that of the United States.
In 2001 Goldman Sachs's chief economist Jim O'Neill coined the term BRIC, an acronym referring to the emerging powers Brazil, Russia, India, and China. In a 2003 publication O'Neill predicted that China will be the world's largest economy in 2045, followed by the United States and India. The 2001 paper calls China a "global factory," describing it as an economic entity with all of the necessary factors for strong economic development. First, it imports the largest amount of foreign capital; second, it has become a production base for the largest enterprise groups in the world; third, it has a huge, cheap, and reliable labor force; fourth, the human capital of this labor force improves over time.
Nevertheless, not all of Goldman Sachs's predictions are rosy. In two books following the BRIC papers, Goldman predicts that China's GDP growth will drop to 5 percent annually by 2020 and by 2040 might hover around 3.5 percent. Despite this decline in growth, the nation's high investment rate, huge labor force, and steady integration into the global economy will still ensure its becoming the world's largest economy by 2041. The other BRIC countries are also expected to climb the ladder of economic prosperity. A Goldman report in December 2009 predicted that the BRIC group will overtake the G7the United States, Japan, Germany, Britain, France, Italy, and Canadain terms of economic power.
In 2004 the United States government's National Intelligence Council (NIC) issued a very influential report, Mapping the Global Future. One of the main components of the report is an evaluation of China's and India's potential to become important new global players by 2020. The document concludes that the likely emergence of China and India, as well as others, as major global players would transform the geopolitical landscape on the scale of Germany's nineteenth-century unification and America's twentieth-century ascendance to superpower status. A significant difference, however, is that the former developments took place exclusively in the West, while the latter would be distinctly non-Western. In completing the report the NIC surveyed more than a thousand American and foreign experts with a variety of backgrounds: academics, businesspeople, government officials, and members of nongovernmental organizations and other institutions. Most forecasts hold that the dollar value of China's GNP will overtake that of any single Western economic power except the United States by 2020, while the value of India's output could match that of a large European country. Because of the sheer size of China's and India's populations, their standards of living need not approach Western levels for them to become important economic powers. In other words, despite having per capita income levels that may be only a fraction of those in the developed world, China and India will become world powers by virtue of their size and economic clout.
In 2006 the Center for Strategic and International Studies and the Peterson Institute for International Economics released China: The Balance Sheet.
Many aspects of China's economic picture are impressive, even amazing. Already, China is the world's fourth-largest economy and third-largest trading nation. It has grown by about 10 percent per year for almost three decades, increasing its output by a factor of nine since launching its economic reforms in 1978. In the process, it has lifted more than 200 million people out of poverty.... In recent years it has accounted for about 12 percent of total growth in world trademuch more than the United States.
The book's authors also observe that China is the second-largest recipient of foreign direct investment and uses its "deep and rapid integration into the world economy" to overcome internal resistance to continued economic reforms.
In July 2008 the Carnegie Endowment for International Peace's Albert Keidel predicted that China would match the United States in terms of economic size in 2035 and that by 2050 China's GDP ($82 trillion) would be nearly two times that of the United States ($44 trillion).
In 2009 Angus Maddison made yet another forecast, projecting China's per capita GDP (PPP) to grow 4 percent annually from 2006 to 2030. Maddison reaffirms his earlier prediction that the PRC's aggregate GDP will overtake that of the United States by 2015. By 2030 he expects China's economy to be one and a half times larger than that of the United States.
To a great extent the rise of China took most members of the international community by surprise. According to Gregory C. Chow, a professor of economics at Princeton, "The country today is so different from what it was in 1978 that hardly anyone in or outside China in the late 1970s could have expected such dramatic changes." Many international institutions and scholars found it very difficult to accurately forecast not only China's actual economic growth but also the forces driving it. Thus far China's rapid economic growth has lasted thirty-two years. The economic rise of the United States, Japan, and South Korea lasted forty-three years (18701913), twenty-three years (195073), and thirty-one years (196596), respectively. How long will China continue to grow? What will China rely on to drive and maintain its growth? These questions remain unresolved. In 1997 the World Bank questioned whether China could maintain its rapid growth, stating that the strength of the Chinese economy over the past two decades did not guarantee that China would continue to grow rapidly in the future. The study suggests that if certain problems could not be resolved they would be likely to harm future growth and cast a shadow over China's future.
Excerpted from CHINA IN 2020 by HU ANGANG Copyright © 2011 by THE BROOKINGS INSTITUTION. Excerpted by permission of BROOKINGS INSTITUTION PRESS. All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
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