China’s Growth is Loaded with Danger.

The United States has the world’s greatest economy, but China, with its massive population, has been gaining ground on it year after year. Is it possible for the United States to buck the trend and gain ground?

According to NPR’s Steve Inskeep, President Biden recently made an oblique remark that has far-reaching ramifications. It was a comment regarding the United States and its main competition in the global economy: China. In a Wall Street Journal article, the President wrote that this year, the US economy may grow at a rate faster than China’s for the first time since 1976. (“China faces a lot of uncertainty about its economic growth”) If this were to be the case, it would be a largely deviating path in the history of economics.

China has been one of the world’s fastest-growing economies, with real annual GDP growth reaching 9.5 percent in 2018 according to the World Bank, becoming “the fastest continuous increase by a major economy in history.” (“China’s economic rise: History, trends, Challenges, and implications for the United States”) On average, China has been able to quadruple its GDP every eight years, lifting an estimated 800 million people out of poverty. (“China’s economic rise: History, trends, Challenges, and implications for the United States”) Historically, China surpassed the United States as the world’s largest economy, manufacturer, goods dealer, and holder of foreign exchange reserves on a purchasing power parity basis.

This is according to Arthur Kroeber, an expert on China’s political economy and the author of China’s Economy: What Everyone Needs to Know. Nonetheless, he claims that China’s rise, both now and in the future, is fraught with uncertainties. Money can translate into global influence, so there’s a lot on the line. As a result, we discussed China’s economic issues. Massive COVID lockdowns in Shanghai’s business hub were among the issues this spring.

In this interview with Inskeep, Kroeber talks about China’s economic potential and how it compares to the United States:

Well, so the government initiated a pretty big crackdown on the big internet platform companies — companies like Alibaba and Tencent — that, like the big internet companies in the U.S., reap enormous profits by scooping up lots of consumer data and, you know, doing things that are, you know, maybe questionable from a market power or a privacy standpoint. And some people have said, well, this — also, because these companies are privately owned, this is kind of a signal that the government is more hostile to private enterprise. I think that’s somewhat debatable, but that’s clearly a risk. The other big thing that is a major problem long-term for them is the property sector. They’ve derived a lot of their growth over the last 20 years basically from the biggest property boom in history. And it’s now clear that the sort of underlying rate of demand for housing in urban areas has peaked. So this major source of growth is evaporating. (“China faces a lot of uncertainty about its economic growth”)

[So, the Chinese government launched a major crackdown on big internet platform companies like Alibaba and Tencent, which, like the big internet companies in the United States, make a lot of money by collecting a lot of consumer data and doing things that are, you know, maybe questionable from a market power or privacy standpoint. And some have said that, because these businesses are privately held, this is an indication that the government is becoming more antagonistic to private enterprise. That is questionable in my opinion, but it is undeniably a danger. The property industry is another important issue that they face in the long run. Over the previous 20 years, they’ve generated a lot of their growth. And it’s now clear that the sort of underlying rate of demand for housing in urban areas has peaked. So this major source of growth is evaporating.]

Many already feel the impact of the credit squeeze, notably among those in smaller private sector organizations and companies in tier three and four cities. As the Chinese economy is becoming increasingly reliant on consumption and services, putting pressure on businesses has a knock-on effect on wages, consumption, and total GDP (“Leung China brief: The state of the economy”). The influx of recent news stories on the topic has caused many to assume that the US-China trade war is to blame for the present economic downturn; politicians have also exploited this as an easy excuse (“MSG Management Study Guide”).

Contrary to popular belief, China’s GDP is significantly less reliant on commercial activity today. While China’s net trade surplus was really only $1.7 billion, its GDP is far less dependent on trade today than what some would have us believe. In fact, China’s net trade surplus was only 1.7 percent of the GDP in 2017, a decrease of 8 percent from 2008. The effect may be more indirect, impacting consumer confidence and causing private sector companies to hold off on making decisions to invest in more manufacturing capacity.

China’s big challenge is to sustain its economic prowess in an environment, not at all based on the advantage that it previously had on the economies of less competitive nations. Instead of selling products to other countries, Chinese businesses now have to sell to one another. (MSG Management Study Guide).

Work Cited:

“China’s Economic Rise: History, Trends, Challenges, and Implications for the United States.” EveryCRSReport.com, Congressional Research Service, 25 June 2019, https://www.everycrsreport.com/reports/RL33534.html.

“China Faces a Lot of Uncertainty about Its Economic Growth.” KBBI AM 890, 13 June 2022, https://www.kbbi.org/2022-06-13/china-faces-a-lot-of-uncertainty-about-its-economic-growth.

Leung, Nick. “China Brief: The State of the Economy.” McKinsey & Company, McKinsey & Company, 25 May 2019, https://www.mckinsey.com/featured-insights/china/china-brief-the-state-of-the-economy?gclid=CjwKCAjwqauVBhBGEiwAXOepkaLYtIex0pJ2C3YJSnnAPcAxWeJeXsbpqfwBnMp5Awn-qeVO7Ia-QxoC8UkQAvD_BwE.

“MSG Management Study Guide.” Top Five Challenges Facing the Chinese Economy, https://www.managementstudyguide.com/top-five-challenges-facing-the-chinese-economy.htm.