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China may have peaked — and the world should prepare

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China’s expansion may soon stop, but it will remain a powerful actor in Asia.
US
President Donald Trump and first lady Melania visit the Forbidden
City with China’s President Xi Jinping in Beijing,
China. Reuters/Jonathan
Ernst
As President Trump travels through Asia this week trying to rally
support against North Korea, we are missing what is an even
greater challenge, something that could very well change the very
nature of international politics as we perceive it.
In fact, Asia’s greatest challenge today is not a nuclear
Pyongyang armed with missiles that can hit most parts of the
planet, but something far more complex: a People’s Republic of
China that is out of space to grow economically, and has in fact
peaked. The ramifications of this fact could be profound, and
indeed reorder our thinking of global politics not just in the
Asia-Pacific, but on a global scale.
To be fair, a few years ago, I would have argued that anyone who
uttered such a phrase was completely nuts. I would point them to
the hundreds of millions of people the Chinese government has
pulled out of poverty, an economy that is second only to America
in terms of total GDP, and a growing military that is on the
verge of not only achieving regional dominance but has global
aspirations.
The headlines seem to suggest a rosy future for a nation that
seems almost destined to take its place as not only a great
power, but as one that could even displace America as a global
hegemon.
But the conventional wisdom is wrong. Beijing will have a hard
time developing its economy at the breakneck speed of years past
and—unless China wants to bankrupt itself—won’t have the
resources to become a global military superpower to rival
America. China, for all intents and purposes, has peaked.
People
cross a street in front of posters depicting late Chairman Mao
Zedong, right, and Chinese President Xi Jinping in Shanghai,
March 1,2016. Thomson
Reuters
While Beijing has been benefited from decades of fast economic
growth—and continues to claim such growth is still
possible— China’s economic picture is not as good as the stats
would have us believe.
First, economists argue that Beijing’s reported 6 percent or more
growth has been largely fiction for the last several
years, but some even argue that it could be much less—more
like two percent. As one senior economist based in Shanghai
explained to me just recently: “China’s economic growth is
largely based on a lie. While it is hard to ascertain when
Beijing started cooking its books, many economists, including
myself, see China only growing at somewhere between two to three
percent.”
The economist continued, adding that, “you have to remember,
China’s whole economic growth strategy was based on having lots
of cheap labor to pump out consumer and other goods out of its
sprawling factories—essentially to be the world’s cheap factory
of choice. But with salaries rising and a decrease in the pool of
labor for such factory work, well, that economic model won’t make
China an economic superpower I am afraid. In fact, China’s
economy seems stuck in neutral—with no clear way out.”
And then there is the debt—lots of debt. You see, China did not
suffer from the same economic crunch the West did during the 2008
economic crisis. Beijing was able to keep growing fast, largely
through local-government financed debt spending.
China spent so much money collectively across the country on
roads, bridges, tunnels, airports and high-speed rail—much of it
a complete waste and only built to drive growth— that Beijing’s total outstanding credit is now 260
percent of GDP. It is so high that Moody’s downgraded China’s
sovereign debt rating, not exactly the sign of an aspiring nation
that will surpass America in power and influence.
Five
men on a electric bicycle cross a street in Changde, Hunan
province, March 16,2014. REUTERS/Stringer
From here it gets worse. China’s large population may get
old—very old—before it ever truly gets rich. China sports an
extremely low fertility rate—the amount of children a women on
average gives birth to in her lifetime—of 1.2 per women. This is
very much below the 2.1 rate needed just to replace the
population.
While a good chunk of this demographic crunch is due to a
one-child policy Beijing instituted decades ago to avoid
over-population, combined with global demographic trends that
have embraced smaller families, China seems destined to get gray,
faster than any other nation on the planet.
Indeed, while we might be talking today about the growth of
Chinese internet subscribers or cell phone sales, we might be
looking at a new stat quite soon: hundreds of billions of dollars
spent on caring for a rapidly aging population. Spending that
won’t go towards the drivers of traditional economic growth and
national power. In fact, such numbers could be
conservative when you consider that China will have 300 million
or more people over age 60 by 2030 —nearly the size of the
America’s total population today.
If Beijing’s rapid economic growth—the basis for its rise in East
Asia and globally—is slowly coming to an end, we must readjust
our own thinking when it comes to China’s eventual place in the
global pecking order.
For example, if Chinese economic growth will be constrained due
to issues of debt and demography, the massive increases in
military spending China has implemented in recent years to
dominate Asia or potentially deter or defeat America will
slow— and in fact that is already happening .
Missiles
seen during a parade to celebrate the 60th anniversary of the
founding of the People’s Republic of China, in Beijing, October
1,2009. Jason
Lee/Reuters
China will also unlikely be unable to develop the
power-projection assets it needs to move into the Indian Ocean,
deeper into Central Asia or Africa and will have no ability to
challenge America in areas outside of Asia.
Beijing would need things like four-to-six aircraft carrier
strike groups, long-range bombers, the ability to move large
expeditionary forces around the globe at a moment’s notice—and
that is just scratching the surface—totaling perhaps hundreds of
billions of dollars, if not more.
When combined with a needed global military basing structure that
would costs additional billions and billions of dollars it
becomes clear this simply out of China’s reach.
While Western and specifically American strategists might be slow
to recognize the economic trends, a “peaked” China will still be
a nation that has clear national interests—interests that will
still likely put China a path of tensions with Washington and its
allies.

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