Report: China will plateau in the 2030s

[funkervogt]

This analysis by the Australian Lowy Institute predicts that China's economic growth rate will sharply slow down in the 2030s, leaving it no higher than America's. As a result, even by 2050, Chinese per capita wealth and living standards will be significantly lower than those in the U.S. Put simply, China will plateau at a lower level than America.

Bad demographics will be the main driver of China's growth problem. The country's population is aging, not enough children are being born, and the working-age share of the population is already shrinking.

China's real estate sector is also headed for a long-term decline, largely thanks to the poor demographics, and also to China becoming fully urbanized. Residential construction employs tens of millions of Chinese workers and comprises a significant share of the country's GDP. Once everyone who wants to live in a city has a condo or apartment, demand to make more buildings will dry up. And as the non-elderly population starts declining, followed by the overall population, general demand for housing will drop as well.

Today's crisis with Evergrande and other big Chinese real estate developers may or may not herald the start of this long-term decline in the country's real estate sector.

China is also out of "low-hanging fruit" infrastructure investments it can make to provide jobs while boosting longer-term GDP. Highways and railroads connect all of the cities, the country's ports are fully developed, its airports are fine, etc. In fact, as with the real estate sector, it's possible China has overinvested in its infrastructure, and the bubble will pop in the coming years once it becomes clear that things like the high-speed railways are money-losers.

Worsened trade relations with the West will also hurt China's economic growth.

Read the whole thing: https://www.lowyinstitute.org/publicati ... rise-china

[funkervogt]

The report also predicts that China's GDP advantage over the U.S. will peak around 2035, when China's GDP is almost 50% greater than America's, before the former starts a slow, relative decline.

[wjfox]

Christ, that'll be a major economic shock. Alongside the carbon bubble (trillions in stranded fossil fuel assets), also expected by ~2035. Perhaps the U.S. will be able to stage a comeback.

[joe00uk]

I don't think there's any real hope of the US staging a comeback and retaining its Number 1 position beyond the middle of the century. China will eventually plateau and face its own decline and fall, true, but I don't think that will happen until much later this century. What I expect to see in the next few years/couple of decades is a 1929-style economic crisis in China (perhaps involving dysfunctional enterprises like Evergrande), but one which will play a similar role for China as the 1929 crash did for the US. That is to say, it will likely usher in a decade of misery and increased poverty, but also one of major reforms which will enable China to clear away much of its political and economic dead brush and set the stage for its period as global hegemon. China today has many of the advantages the US had in dealing with the Great Depression in the 1930s, such as its wealth of natural resources, growing worldwide sphere of influence, and massive industrial capacity - features which are not shared so much by Western countries these days.

[funkervogt]

Christ, that'll be a major economic shock. Alongside the carbon bubble (trillions in stranded fossil fuel assets), also expected by ~2035. Perhaps the U.S. will be able to stage a comeback.

Attention will probably shift to other developing markets, particularly South and Southeast Asia.

[funkervogt]

That is to say, it will likely usher in a decade of misery and increased poverty, but also one of major reforms which will enable China to clear away much of its political and economic dead brush and set the stage for its period as global hegemon.

The analysis is skeptical of the Chinese Communist Party's ability to reform itself to boost economic growth. Reforming or even privatizing the country's massive, state-owned enterprises and radically changing property ownership laws, for example, would help China's economy, but the measures are antithetical to socialism and would hurt a lot of rich and powerful insiders.

[joe00uk]

The analysis is skeptical of the Chinese Communist Party's ability to reform itself to boost economic growth. Reforming or even privatizing the country's massive, state-owned enterprises and radically changing property ownership laws, for example, would help China's economy, but the measures are antithetical to socialism and would hurt a lot of rich and powerful insiders.

That's why I think there'll be increasing intra-elite competition as various factions try to outmanoeuvre each other, much like the US in the early 1930s.

[Yuli Ban]

Seems obvious to me EVERYTHING is going to plateau in the 2030s. No matter how AI progresses past that, it's inevitable that humans will be forced to utilize fewer resources. Of course in a better scenario, we'd be a virtual reality so much more that it wouldn't matter; as long as we're in there, scarcity is of no concern and our real-life consumption could be greatly reduced to only as much needed to run the simulations.
In a worse scenario, well...
"We really did have it all, didn't we?"

[raklian]

Seems obvious to me EVERYTHING is going to plateau in the 2030s. No matter how AI progresses past that, it's inevitable that humans will be forced to utilize fewer resources. Of course in a better scenario, we'd be a virtual reality so much more that it wouldn't matter; as long as we're in there, scarcity is of no concern and our real-life consumption could be greatly reduced to only as much needed to run the simulations.
In a worse scenario, well...
"We really did have it all, didn't we?"

Well, in the best scenario, we'll be thanking Starship (or a more advanced version of it) and asteroid mining for our huge abundance of resources. Even gold and platinum are so cheap.

[erowind]

.

"Bad demographics will be the main driver of China's growth problem. The country's population is aging, not enough children are being born, and the working-age share of the population is already shrinking.

China's real estate sector is also headed for a long-term decline..."

Both problems are only problems in capitalist societies. China itself is a truly mixed economy, with nearly half of its industry being state owned and planned. China can use economic planning to work its way out of these problems--could even employ expropriation of existing private property--and doesn't have to pay heed to the profit motive if it so desires. The solution is not greater privatization, as is evident in capitalist countries with declining populations like Japan. The economic proclamations in reports like these are not self-evident and their outcome depends on a given societies response, not prophecy.

"China is also out of "low-hanging fruit" infrastructure investments it can make to provide jobs while boosting longer-term GDP. Highways and railroads connect all of the cities, the country's ports are fully developed, its airports are fine, etc. In fact, as with the real estate sector, it's possible China has overinvested in its infrastructure, and the bubble will pop in the coming years once it becomes clear that things like the high-speed railways are money-losers."

There's no such thing as "overinvested" infrastructure in the sense presented. In economic systems that value efficiency and quality of life the raw monetary profit to be made from a given infrastructure project is a non-factor. The only economic calculations to be made are the energy/resource input/output and labor input/output. High speed rail is extremely efficient and will permit China robust infrastructure into degrowth scenarios of the 21st century even as the world will be forced to give up on automobiles as primary forms of transportation due to intensifying resource scarcity.

"The analysis is skeptical of the Chinese Communist Party's ability to reform itself to boost economic growth. Reforming or even privatizing the country's massive, state-owned enterprises and radically changing property ownership laws, for example, would help China's economy, but the measures are antithetical to socialism and would hurt a lot of rich and powerful insiders."

Capitalist reforms that further entrench the capitalist mode of production in China will only make the economy worse. Austerity does nothing but cause greater inequality and inefficiency in economies as is demonstrable by 40 years of the policy across the western world. Changing property laws to permit rent-seeking in the economy from private property holders only causes more inefficiencies through economic parasitism and feudal-esque labor relations. In that sense I sincerely hope the communist party "fails" to bring about such reforms.

In terms of the communist parties ability to improve Chinese society overall, I'm skeptical, but for different reasons. There are considerable marxist factions within the party to this day that are still demanding a greater use of economic planning. However they are currently being outcompeted internally by state capitalists and fundamentalist traditionalists, two factions that will steer China into crises not deliver it. My concern is the opposite to the reports, I think China's political system is prime to introduce greater private property right and austerity in an ethnically motivated fascist way. Namely, I expect that greater property rights and a form of economic racism will take place where first class citizens are the ones considered most "Han" and those who are not "Han" will experience prejudice ranging from reduced rights to outright genocide as is the case with Uyghurs.

In summery. China's fate depends on which internal political factions win out overall in the current political crises internal to the communist party. If China embraces capitalism further, or simply does nothing, it will not be able to cope with the coming degrowth of the global economy. If China can embrace economic policy that does not prioritize or even explicitly acknowledge profit-seeking as a factor in economic decisions than it has a solid chance of thriving throughout the century.

China will eventually plateau and face its own decline and fall, true, but I don't think that will happen until much later this century.

How much later? I could see 2040-2050 but much beyond that is untenable. The ecological crises will be preeminent globally in all countries by the 2060s to the effect that any nation not responding to it directly will completely and brutally perish shortly thereafter.

[joe00uk]

How much later? I could see 2040-2050 but much beyond that is untenable. The ecological crises will be preeminent globally in all countries by the 2060s to the effect that any nation not responding to it directly will completely and brutally perish shortly thereafter.

My random guess is that a Chinese plateau will probably come around the 2060s, with the situation possibly deteriorating quite rapidly after that. Climate change will likely play a huge part, you're right. I expect China to withdraw from places like Tibet, Xinjiang and Inner Mongolia before 2100 as they become too costly to prop up. I also expect much of the American West to be abandoned over the next century.

[caltrek]

I am reminded of past references to the "declining rate of profit." I am beginning to think that this is something that is not confined just to capitalist economies. That is to say, that perhaps there is a tendency under some circumstances for the rate of return on investment in new technology to drop. China may be approaching a period like that. If so, its economic system is well suited to handle the crisis. That is to say, government has appropriated to itself many tools that it needs to manage a slowing economy. These tools can help it maintain full employment and plan for obvious bumps in the road ahead. At the same time, it is not so totalitarian as to attempt to completely replace the marketplace as a planning and adjustment mechanism.

One thing that it will need to avoid is to fall into the trap Russia is in. To attempt to try and solve its problems through further military aggression. What Mao would call "adventurism." That is, the needless taking of risks on the military front.

[funkervogt]

"China is also out of "low-hanging fruit" infrastructure investments it can make to provide jobs while boosting longer-term GDP. Highways and railroads connect all of the cities, the country's ports are fully developed, its airports are fine, etc. In fact, as with the real estate sector, it's possible China has overinvested in its infrastructure, and the bubble will pop in the coming years once it becomes clear that things like the high-speed railways are money-losers."

There's no such thing as "overinvested" infrastructure in the sense presented. In economic systems that value efficiency and quality of life the raw monetary profit to be made from a given infrastructure project is a non-factor. The only economic calculations to be made are the energy/resource input/output and labor input/output. High speed rail is extremely efficient and will permit China robust infrastructure into degrowth scenarios of the 21st century even as the world will be forced to give up on automobiles as primary forms of transportation due to intensifying resource scarcity.

You're wrong.

Here's an example that illustrates my point: Turkey just built the first bridge over the Dardanelles Strait, linking Europe with Asia by road. It is named the "1915 Canakkale Bridge." Before it existed, vehicles had to take ferries across the Strait, or had to take massive detours up to Istanbul to cross one of the bridges there (the straight line distance from the new bridge to Istanbul is 220 km). Those alternatives added substantial time and fuel costs to vehicles traveling certain routes. But now:

The “1915 Canakkale Bridge” cost 2.5 billion euros ($2.7 billion) to build but Turkey will save 415 million euros ($458 million) per year from a reduction of fuel consumption and carbon emissions, Erdogan said. He announced the bridge’s toll will be 200 Turkish lira ($13.60)

https://www.marketwatch.com/story/turke ... 1647625757

Doing the math, the savings to the Turkish economy will pay for the Bridge's construction in only six years, and thereafter, it will boost the country's GDP for decades, perhaps a century. It was an intelligent investment made by the country's government.

So what happens if Turkey builds a second bridge next to the first? Let's call the former the "1915 Canakkale Bridge-2." Will the 1915 Canakkale Bridge-2 also add $458 million to the Turkish economy each year thanks to reducing fuel consumption and carbon emissions?

No. The first bridge has the capacity to handle all the Asia-Europe traffic that would have taken the route, so opening a second bridge would not benefit anyone, and no one would use it. It would be an overinvestment in infrastructure.

The Turkish economy would experience a short-term jolt as thousands of people got jobs building the 1915 Canakkale Bridge-2, but the project would damage the economy overall, starting in the medium term, as the bridge sat unused, but gobbling up money each year for maintenance.

This example illustrates China's problem. They've already built or are close to finishing every worthwhile infrastructure investment like the 1915 Canakkale Bridge. That means the strategy of increasing the size of China's economy by having the government pay its citizens to build infrastructure is near its end. If China keeps building infrastructure, it will actually damage its economy. In fact, they've probably already done this by building high-speed rail lines linking their less important cities to each other. Like the hypothetical 1915 Canakkale Bridge-2, not enough people are using them to even pay for their yearly upkeep.