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

China's S-Shaped Threat


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.

December 11, 2011 at 17:56

You’ve got it in one. Couldn’t have put it beettr.

Milo Jones
October 11, 2011 at 15:03

A moderately detailed case for why China may already have peaked is made here:

October 10, 2011 at 05:25

Ozivan – gays are not the only category of Asian and Muslim societies to be hidden. When was the last time you saw a person in China with an intellectual or severe physical disability independentally out on the streets doing their own shopping, or heading home to their own apartment? Gays are beginning to come out in China to say “we are normal in any population in the world”, but the disabled people are still firmly locked up and drugged up in prison-like psychiatric hospitals in China. Why? Because they should not exist and are “shameful” to admit to, just like gays used to be. If it was not for the accident of your birth into your present body Ozivan, you could be both gay and disabled. How would you live as a human in your country if you were like that? Have some compassion and ethics please.

October 10, 2011 at 05:10

I thought Crispus made some very good points. Like him, I lived in Japan during its rise in the 1980′s. I remember struggling to earn a living in Tokyo to pay for my education costs in Japan, but being surrounded by so much conspicuous consumption heavily flavoured with arrogant nationalism. I remember a phrase in Japanese from the time where the US dollar was described as “play-money”. The year before I left, a favourite bar drink was sake which had gold flakes in it. Real gold flakes to end up in a toilet. How could people be so confidant about the “permanence” of wealth. I’m now coming to the end of severasl years living in 1 Chinese city so can make comments about changes over time I witnessed.

Suddennly last year I realised I had seen it all before in the Japan of the 1980′s – it is all there. I was experiencing deja vu – conspicuous consumption on things like jewellery, clothing, house furnishings. The sudden rise of car-ownership in a very selfish way with everyone wanting an enormous range-rover completely unsuitable for modern city commuting and shopping, and with the highest of petrol consumption for motor vehicles. Then the arrival of juvenile, arrogant nationalism encouraged by the government. How sick I am of the phrase “but we are only a developing country and you are a rich white foreigner” as an excuse for all kinds of innefficiency. Older people are at a disadvantage in the Chinese job market, but like Crispus they have something which can not be bought but only experienced – we have seen it before, and can only wonder why people, and even countries want to repeat the mistakes of the past but with a different brand-name.

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