China is not about to take over the world

The 18th Party Congress is about to usher in a fresh set of Chinese leaders, but our readers don’t expect much to change.
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Xi Jinping, China's president-in-waiting, is not expected to be a reformer
<div style="text-align: left;"> Xi Jinping, China's president-in-waiting, is not expected to be a reformer </div>

My three-year-old nephew sent me a birthday greeting in Mandarin recently. He lives in a picture-postcard Yorkshire village, 6,000 miles from China, but is clearly positioning himself to exploit the country’s inevitable economic rise.

I doubt he sees it quite like that, to be honest, but his parents do. Indeed, it almost goes without saying in the West these days that China will soon take over as the dominant superpower on the planet. By then, we’ll all be speaking Chinese, driving solar-powered BYD cars and using Weibo to tell our friends about the latest kung-fu blockbuster.

But will we really? After 12 years in Hong Kong, it seems to me that the opposite trend is far stronger — China becoming more Western.

On my first trip to the mainland in 2000 (and lacking my nephew’s language skills), I was reduced to performing an aeroplane impression in Tiananmen Square to an audience of roughly 20 taxi drivers, each eager to win my fare, but none of whom understood the word “airport”.

That was a very different city to Beijing in 2012. Today, Western culture in general is much more prevalent in Chinese society, at least in the big cities.

English football and American basketball have attracted hundreds of millions of fans, and a Chinese golfer is about to make history at the US Masters. The lust for smartphones and tablets is just as pronounced in Shanghai as it is in London or Berlin (and the demand for foreign milk powder is far beyond anything ever seen in Springfield).

Inward investment is still just a trickle compared to the potential, but it is hard to spot any signs of China sending its culture in the opposite direction. Mo Yan might have just won a deserved Nobel prize for literature, but that is hardly a recognition of populism. Most people in the West would struggle to name a single Chinese person, besides Zhang Ziyi and a handful of sports stars.

Yet the fear remains that China is on course to take over the world and, more specifically, the US. Mitt Romney and Barack Obama, the two candidates for the US presidency, have both sought to play to American fears about China.

Such views are seemingly popular among voters, but reflect a surprising lack of faith in the idea of American exceptionalism — and an equally surprising confidence in capitalism with Chinese characteristics.

Indeed, a recent Pew study showed that 41% of Americans think China is currently the world’s leading economy, compared to just 29% of Chinese.

However, China’s recent disappointing growth suggests that such confidence is misplaced, and has led some to argue that the country’s growth model is failing.

As economist Michael Pettis noted on his blog recently, China’s economy is suffering from an investment-led imbalance very similar to Japan’s during the 1980s — and is now due for a similar period of rebalancing that will confound most of the projections about China’s growth.

“The standard analysis provided by the IMF, the World Bank and both academic and sell-side research ... implicitly assumes no real change in the underlying development model — no phase shift, to use a more fashionable term,” he wrote a few weeks ago. “If this assumption is correct, then the analysis is useful. If, however, we are on the verge of a shift in the development model — perhaps, and usually, because the existing model is unsustainable and must be reversed, the analysis has no value at all.”

The key to this rebalancing will be a real rise in wages and productivity, and a stronger shift to domestic consumption — but also a change from the top-down approach that funnels government money into the economy through state-owned banks and enterprises.

Whether it succeeds or not, Chinese economic dominance seems a long way off. And the China that emerges at the end of that process will not look much like the China of today, because the only effective way to compete with the innovation and dynamism of America’s economy is to copy it — by unleashing the power of private businesses and allowing far greater foreign investment.

To pull that off, China’s incoming leaders will need to get serious about reform, so we asked our readers last week how they thought the new lot would perform.

More than 61% said the 18th Party Congress would usher in a leadership that would maintain the status quo.

Rather than reform, that suggests China will cling to its top-down model of economic growth. As long as that stays true, it is hard to see a path to Western standards of living. Instead, status quo suggests that China will postpone its rebalancing for as long as possible, before succumbing to much slower growth as the economy gradually digests years of accumulated bad investments.

This would hardly be much of a surprise — in fact, it is a pattern that has been repeated by most of the countries that have ever tried to join the rich world.

China will get there eventually, but it will probably take far longer than matters to most American voters. Or to my nephew.

¬ Haymarket Media Limited. All rights reserved.
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