China's S-Shaped Threat
Image Credit: Flickr / Tyler

China's S-Shaped Threat

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According to the US National Intelligence Council (NIC), ‘China is poised to have more impact on the world over the next 20 years than any other country.’ China is already the world’s second largest economy, second largest energy importer, largest natural resource importer by volume, and largest emitter of greenhouse gasses. Indeed, following the S&P downgrading of the US credit rating to AA+, Beijing feels empowered to declare that it ‘has every right now to demand the United States to address its structural debt problems.’

However, despite its astute policy navigation, efforts to guide national development, and claims of exceptionalism, China isn’t immune to larger patterns of economics and history. And those patterns tell us that China faces costly internal and external challenges that will hinder its ability to avoid the S-Curve-shaped growth slowdown that so many previous great powers have experienced, and that so many observers believe the United States is undergoing today.

Where China is headed domestically and internationally has major implications across the board for virtually everyone on this planet. The country has risen at a rate beyond even its leaders’ expectations over the past three decades, and a power shift is afoot in the international system. The fully unipolar system that persisted from 1989 to roughly 2008 is no more. To many, this signals a clear power transition in which China is poised to overtake the United States as the world’s foremost power. Estimates emerge constantly as to when China’s economy will become larger than that of the United States, and it’s assumed that China’s diplomatic, information, and military aspects of national power will grow in proportion.

But many policymakers and economists question whether China’s current growth trajectory can be maintained in the face of clear structural challenges that include pollution, corruption, chronic diseases, water shortages, growing internal security spending, and an aging population—all factors that feed off of one another and exact increasingly large costs for the Chinese state and economy.

One prominent Beijing-based economist, for example, believes that the country’s growth will need to slow to 3 percent to 4 percent per year—less than half the current rate—if it is to sort out structural imbalances in its economy. That’s a rate that the United States, Japan, and many European countries would envy, but the global implications are very different from a 7 percent to 8 percent annual growth regime.

The S-Curve concept is a useful tool for describing how great powers rise and decline. Because of an historical tendency for national efficiency to decrease as society ages, states tend to decline and thereby cause a downward spiral of increasing consumption and decreasing investment that undermines the economic, military, and political underpinnings of a state’s international position.

A society or country experiences slow growth in the early years, then enjoys more rapid growth as more resources flow into the state treasury, infrastructure develops, and the birth rate falls. The process continues until the state reaches its maximum growth rate, at which point various countervailing forces begin to constrain expansion and set the economy onto a slower growth path or even a state of equilibrium. Domestically, social spending and partisan behaviour may threaten productive investment and economic growth. Internationally, a hegemon tends to ‘overpay’ for influence in the international system because of the tendency for allies to ‘free ride,’ and technological diffusion can undermine a hegemon’s economic and technological leadership. But differences in national system and circumstances may have profound implications for the creation and maintenance of national power.

Many argue that it is precisely S-Curve-like factors such as explosive growth in healthcare and pension costs and military/overseas commitments that threaten American prosperity and pre-eminence. But few have considered the possibility that similar factors could constrain China—and perhaps much sooner than commonly anticipated. In its early years of modernization, China exploited a ‘demographic dividend,’ namely low labour costs and initial infrastructure investment, to grow rapidly. But the country is now beginning to assume social welfare and international burdens that will likely slow growth progressively, and may even check China’s rise in the international system as its leaders are forced to make much more difficult sets of ‘guns vs. butter’ decisions.

Managing China’s challenges will require major shifts in the country’s economic, and perhaps, political structure. This may substantially constrain its potential economic growth and, proportionately, its ability to invest in education, innovation, the military and other factors that help determine a country’s comprehensive national power.

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