The China Syndrome

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China's ascension to the world's second-largest economy, surpassing Japan, has led to predictions that it will inevitably snatch the No. 1 spot from the United States. Nomura Securities envisions China surpassing the U.S.' total GDP in little more than a decade. And economist Robert Fogel predicts that by 2050 China's economy will account for 40% of the world's GDP, with the U.S.' share shrinking to a measly 14%.

Americans indeed should worry about the prospect of slipping status, but the idée fixe about China's inevitable hegemony--like Japan's two decades ago--could prove greatly exaggerated. Countries generally do not experience hyper-growth--the starting point for many predictions--for long. Eventually costs rise, internal pressures grow and natural limitations brake and can even throw the economy into reverse.

Instead the U.S. has a decent chance of remaining the world's pre-eminent economy not only over the next decade or two and even by mid-century. There are five key reasons for this contrarian conclusion.

1. If Water is the "new oil," China faces a thirsty future. China's freshwater reserves are about one-fifth per capita those of the United States, notes Steve Solomon, author of Water: The Epic Struggle for Wealth, Power and Civilization. Much of that supply has become dangerously polluted; ours , for the most part, has become cleaner.

More important, the U.S. has become more efficient in its water usage, says Solomon. China, with a far less developed economy, will face increasing demands from industrial and agricultural users as well as hundreds of millions of households that now don't enjoy easy access to clean drinking water.

2. China's energy demands are soaring, but it lacks adequate domestic resources. China impresses journalists and policy-makers with grand "green" projects and heavy investment in renewables, but two-thirds of the country's energy comes from that dirtiest of sources. China burns more coal than the U.S., Europe and Japan combined, often using very primitive technology. It has now overtaken the U.S. for the dubious honor of the most total energy use and highest greenhouse gas emissions. Since 1995 China's dependence on foreign oil has grown from near to approaching 60%, and the country, long a coal exporter, is becoming a major importer of that unfashionable fuel.

The U.S. meanwhile sits on largely untapped fossil fuel resources, including coal, natural gas and oil. Add Canada to the equation and North America ranks second, behind the Middle East, in energy resources. In contrast to China, America's energy use and greenhouse emissions appear to be dropping while still enjoying enormous, still largely untapped renewable resources, particularly from wind power in the Plains and biomass.

3. Food remains pressing problem for China. Scarce water, mass pollution and high energy costs all will limit China's future food production. By some estimates acid rain falls on a third of all agricultural land; some climate experts predict long-term reductions in the country's vital rice crop.

Plagued by floods, China now will have to look to U.S. and Canada to meet demand for crucial foodstuffs, particularly corn. And the food deficit may get worse over time: As China becomes wealthier, demand for high-protein foods like beef and pork will increase. The U.S. remains the world's most reliable supplier of many of those agricultural products.

4. China's rapidly aging population and shrinking workforce will slow growth, perhaps dramatically, by the next decade. Like that of the "Asian tigers" in the '70s and '80s, China's rapid growth has been propelled in part by an expanding young workforce. Due to a very low birthrate, however, this trend will reverse within a decade or two. By 2050 31% of China's population will be older than 60, compared with barely one-quarter in the U.S. There will be over 400 million elderly, with virtually no social security and few children to support them. Also worrisome: The preference for male children has skewed sex demographics dramatically, with roughly 30 million more marriageable boys than girls.

The logical solution to this dilemma would be immigration, but China's culture appears far too insular for such an event. Rather than a benevolent "socialist" super power China, whose population is made up over 90% Han Chinese, will bestride the world as a racially homogeneous, and communalistic "Middle Kingdom." In contrast, the U.S., despite occasional fits of nativism, remains remarkably successful at integrating cultures from around the globe.

5. Dictatorship thrives sometimes in a "take off" period, but often fails to compete well with more open societies during later stages of growth. Many American intellectuals and journalists celebrate China's achievements, much as some of their predecessors admired past "successful" economic regimes in fascist Italy, Nazi Germany and the late Soviet Union. The longest lasting of the authoritarian superpowers, the Soviet state massively misallocated its resources in its unsuccessful competition with the more flexible systems of the U.S. and its allies.

Big Brother economies experience more subtle problems. Chinese entrepreneurs , according to a survey by the Legatum Institute in London, depend far more than their more nimble and self-reliant Indian counterparts. Overweening Chinese state power also might be chasing many foreign businesses--and some developing countries-- toward more congenial investment and trade partners.

For all these problems, the Chinese emergence remains the dominant business event of our epoch. But world-wide dominion seems highly unlikely. One often overlooked factor: political problems stemming from growing inequality in this officially Marxist state. Over the past 20 years China's income distribution pattern has shifted from the relative egalitarianism of Sweden, Japan or Germany to that of countries like Argentina and Mexico.

The class divisions will deepen further as growth inevitably slows. Roughly one-third of 2008's 5.6 million university graduates have been unable to find work. Things are even worse for those less skilled, rural residents and small manufacturers.

Ironically, the Communist Party appears to further concentrate wealth and power; most of the richest people in China are linked to the party. Policies push growth, but with diminishing rewards to the masses. Over the last decade the share of GDP going to consumption dropped from 46% to less than 36%.

Of course, a comparatively small number of skilled, with often well-connected professionals and investors flourishing, but opportunities for economic advancement may now be scarcer for most workers compared to the earlier period of China's remarkable "liftoff" after 1980. Conditions for the working class in China remain more akin to Dickensian England than a Marxian "worker's paradise." China's dismal health care system for example, ranks according to the World Health Organization, among the world's most inequitable, 188th out of 191 nations.

Not surprisingly, class anger has reached alarming proportions, with almost 96% of respondents, according to one recent survey, agreeing that they "resent the rich."

America also faces its own share of social problems but not to such an extreme degree. Many Americans resent the affluent, but also dream of becoming them. How else to explain the popularity of paeans to bourgeois vulgarity like Housewives of New Jersey?

In the coming decades China, not the currently depressed U.S., may face greater headwinds. America's biggest enemy will prove to be not China, but itself. The U.S. needs to move toward a pro-growth course driven by investments in our productive economy, basic infrastructure and skills-based education as well as sustainable immigration and population growth levels. If the country does these things then Americans will someday look back at their current Sinophobia as a delusion dressed up as irresistible conventional wisdom.

This article originally appeared at Forbes.com.

Joel Kotkin is executive editor of NewGeography.com and is a distinguished presidential fellow in urban futures at Chapman University. He is author of The City: A Global History. His newest book is The Next Hundred Million: America in 2050, released in February, 2010.

Photo: Steve Webel



















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China's growth has enormous

China's growth has enormous scale and I think that no other country will be able to fight against it. They have strong direction to rule the world and so far they have done incredible job.
I think they will get over-burned at some point but till then they will become the largest economy it the world.
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Well China really rocks in

Well China really rocks in terms of growing their economy but there are so many things that they haven't noticed or just don't want get into.

For instance, the pollution in the large cities becomes worse and worse each year. They don't care about it, they just shoot more chemicals into clouds to make them rain and this is the only thing they care.

I think they will become worlds largest economy really fast but most polluted country on earth as well

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about water in China...

I notice that China has a water shortage due to pollution and population. They're hoping to solve it with massive desalination plants. Desalination, however, still requires significant amounts of energy, it's only a temporary fix. China is already having coal shortages for electricity production and metal smelting, even though they are the worlds biggest coal producer. Fixing it at it's source would be to stop polluting and reducing the population. With desalination they are only hedging their finite fossil fuel resources against their freshwater problem. iphone 5 cases

The China Syndrome

A very good article. The water issue is particularly interesting as it could prove the most intractable.

Most of China's success of late have come from their excess and cheap workforce. At the same time, they struggle with the plague of too many people, they are finding that too many people can be useful. It does not take much to get a desperate person to work for very little.

I hope that in 100 years the USA does not have a population of 1.3 billion people and China a sensible population of a fourth of its current population. Judging from the directions each country is going that could happen.

If we judged countries on how content and happy are their people instead of how much they propel their GDP many "successful" countries would be dismal failures.

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The China Syndrome

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I've been studying China's

I've been studying China's economy for a number of years and certainly don't count myself as a expert, but I somehow fail to see how China won't surpass the US, and do so rather soon. The reason is simple: They have A LOT of people. If anything China resembles the US compared to the UK at the turn of the last century. At that time we were building the panama canal. China just finished the 3 gorges dam- the largest in the world. In fact, it seems that if you look at just about anything China builds today it usually happens to be the biggest or grandest.

But getting back to its population, simply put, China has an almost inexhaustible supply of workers and even though wages have gone up somewhat, they're still a lot cheaper than our workers. That manpower alone is to me the reason I think they will succeed in passing the US.

Secondly, the US economy has for the last 3 decades been tied very heavily to the housing market. We long ago left a productive economy behind in favor of one that relies on mortgage debt. Returning to an economy that relies on actual production would mean a reversal in the way our economy functions. As seen from the latest poor housing market performance the market is still overly reliant on its success. On the other hand China's economy is tied almost exclusively to production and exports which in turn puts a lot of money in their pockets.

Lastly, when the day comes that China inevitably surpasses the US, will it in fact necessarily be such a bad thing? The US has been the biggest, baddest economy for around 100 years. Yet when you look at many other smaller countries like Sweden, Norway, and others they enjoy an higher overall standard of living than we do. The size of your economy has little to do with the quality of life enjoyed by the citizens. Additionally, the US is in many ways profiting from the success of China. For example GM announced last month that they had for the first time in their history sold more cars in foreign markets than in North America. The primary reason was China, where Buick is the best selling import brand.It goes without saying that China is one of the biggest reasons GM was able to pull out of bankruptcy as soon as it has. The same goes for many other American firms. While China is growing is the time we should be aggressively pursuing their business and giving their consumers things to buy- things that we make or produce. Again, it comes down to the numbers. The example of GM could easily be the same for any American company where even a small percentage in the Chinese market would mean comparatively huge sales back home. I guess I look at the economic success of China as a potentially positive thing in terms of what it means for future business. We should be taking advantage of that potential.

I think this article does make some good points though. I'm in my mid-30's and I recall when I was younger people saying similar things about Japan- that "everything was made in Japan". When was the last time you actually saw anything made there? Perhaps your car is- or least parts of it are. Anything electronic has been made in China for the better part of 10 years. We all thought Japan would surpass us any day and none of that happened. As for China, well it'll be interesting to see what happens.

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"Chinese entrepreneurs...depend far more than their more nimble and self-reliant Indian counterparts."

Far more than what?

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"preference for male children has skewed sex demographics dramatically, with roughly 30 million more marriageable boys than girls."

A war with both Russia and India simultaneously will solve that problem.

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"enormous, still largely untapped renewable resources, particularly from ...biomass."

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