China to Trounce U.S. in Next Decade

The Western financial crisis heralded a significant shift in the balance of power between the United States and China. Most starkly, it brought forward the date when the Chinese economy will overtake the US economy in size from 2027 (the Goldman Sachs projection in 2005) to 2020. The reason is simple: while the US economy is around the same size as it was in 2008, with the prospect of perhaps a decade of very weak growth ahead, the Chinese economy has continued to grow at around 9 percent and future economic growth is likely to be in the region of 8 percent. While 2027 sounded sufficiently far in the future to sound speculative, 2020, in contrast, is less than a decade away and feels much more like an extension of the present. The rise of China and the decline of the United States is becoming more tangible by the year.

Significant landmarks are happening thick and fast: in 2010, China overtook Germany to become the world’s largest exporter; in the same year it overtook Japan to become the world’s second-largest economy; at the beginning of 2011, it overtook the United States to become the world’s largest manufacturing nation, a position the United States had held for 110 years; in 2020, if not earlier, it will overtake the United States to become the world’s largest economy; and perhaps not too long afterwards, when the renminbi is finally made convertible, the latter will replace the dollar as the world’s leading reserve currency. With each landmark we move a little further away from a world shaped by the United States and toward one shaped by China.

There has been a strong tendency in the West to see this world in narrowly economic terms, with China assuming similar characteristics as the United States during the process of its rise and the global furniture that we are familiar with remaining little changed. This is to greatly underestimate the nature and import of China’s rise. It will not even be true economically. When China overtakes the United States, it will still be both a developed and a developing economy; it will continue to be a huge trading nation, on a far greater scale than the United States; and it will be far more orientated towards the developing world, to which it presently sends over half its exports, than Washington has been.

Nor will the international financial system remain more or less unchanged. The only way that the IMF and the World Bank will survive China’s rise to economic ascendancy is if they come to reflect the new configuration of global economic power: in other words, if, in time, China comes to call the shots in the IMF. But even in this eventuality, it is entirely possible that the IMF will be effectively replaced by a different kind of body, one more in line with Chinese interests and aspirations, along with those of other developing countries like India. In this context, it should be noted that already, in 2009-10, the China Development Bank and the China Exim Bank between them lent more to the developing world than the World Bank, which suggests that the latter could, within a decade or so, become increasingly marginalized. Then factor in the renminbi as the dominant world currency, with Shanghai replacing New York as the global financial centre, and we are clearly looking at a very different world economic order.

Furthermore, the accompanying geopolitical and cultural changes are likely to be even more profound. China may have called itself a nation-state for the last century, but it remains primarily a civilization-state, as it has been for more than two millennia. Whereas the Western sense of identity is overwhelmingly shaped by their history as nation-states, the Chinese sense of identity is rooted in and shaped by their civilizational past. It is impossible to comprehend the very distinctive nature of the Chinese state, and the roots of its legitimacy, or similarly distinctive Chinese attitudes towards race, otherwise. Likewise, to make sense of China’s rapidly changing relationship with East Asia, it is necessary to take account of the tributary system which was the organizing basis of China’s relations with its neighbors for thousands of years until around a century ago. Indeed, China’s present claim on the Spratly and Paracel Islands in the South China Sea, which is based on inter-temporal law rather than territorial water law, derives directly from its history as a civilization-state. Those who believe that China’s rise to global hegemony will in practice change little can only hold to this view by ignoring China’s quite different history to that of the West.

Will this Chinese world be better or worse than the Western-made world we are familiar with? In one very important sense it will be better: while the West has never represented much more than a sliver of humanity, China and India between them constitute 38 percent of the world’s population. Their rise represents a huge rough and ready democratization of the world. Nor should we fear this world because it will be so unfamiliar to us. We need to understand and embrace it: the sooner the better, because, willy-nilly, we have no choice. In time it will come to pass.

Image by Ricky Qi