IS POWER in Asia really shifting from America to China? The spectacular growth of China’s economy is the best reason to think it is. But many people, especially in America and among its friends in Asia, doubt that China is anywhere near having the economic heft seriously to challenge US power in Asia, or that it ever will.
This is a very important issue. If these observers are right, there is no reason for Washington to accommodate Beijing’s aspirations for a bigger say in Asian affairs. If they are wrong, and China’s economic rise really is changing the balance of relative power sharply Beijing’s way, then Washington needs to take Beijing’s challenge to its leadership in Asia much more seriously.
Measuring economic clout
SO, WHICH is it? First, we need to be clear what economic measures we should be looking at. Those who argue that America is still far ahead of China often point to the huge gap in gross domestic product (GDP) per capita. Though it has risen spectacularly since 1980, China’s per capita GDP is still only one-fifth of America’s in terms of purchasing power parity (PPP) – a measure which irons out the effects of currency exchange rates. By this yardstick, there is little chance that China could ever catch up with America.
Clearly, the average American still lives a much more affluent life than the average Chinese. But this figure does not tell us very much about national power. If GDP per head was the basis of national power, then Singapore would be more powerful than China. So this cannot be the primary measure. National power depends on the resources available to the state for national purposes, and that depends ultimately on the size of the overall economy, rather than per capita GDP.
If we look at GDP itself, however, the two giants are much closer. Today, China’s GDP is about 75 per cent of America’s (again, in PPP terms). China’s GDP has risen astonishingly since 1980, when it was equal to about 5 per cent. But the US still has a comfortable, if diminished, lead over China.
Trends favouring the US
MOREOVER, many observers believe that the trends are shifting back America’s way. China’s economic growth has slowed from the breakneck average of 10 per cent a year since 1980, and it seems unlikely to exceed 7 per cent in future. Meanwhile, though recovery from the global financial crisis remains sluggish, America’s economy is expected to pick up speed soon.
This leads people to hope that, in the longer term, America can outperform China and widen the economic margin between them. They also point to deep-seated economic problems in China requiring major structural change, as well as pressures for political and social reform, all of which they assume will slow the economy further. Then there is the American genius for innovation, hopes for a revival in manufacturing, and above all, America’s “fracking-driven” energy revolution.
All these factors are important, but we should be cautious about exaggerating their overall impact on the underlying trends that drive the relative size of the world’s two biggest economies. In the coming years, China’s economy will grow more slowly, and Beijing will have to manage many difficult problems. But it will still probably average 6 per cent or even 7 per cent growth a year.
Meanwhile, in America, higher domestic gas production, though it has given Americans a welcome boost in confidence, will not transform the economy. It will improve the balance of payments as America becomes an energy exporter again instead of an importer, and it will cut energy costs for manufacturers. But it will not drive US GDP growth rates above China’s.
China to overtake US
INDEED, by far the most likely prognosis is that China’s economy will continue to grow significantly faster than America’s for decades to come. That means that eventually China will most probably overtake America to become the largest economy in the world, and may well go on to exceed US GDP by a wide margin within a few decades.
Some people who nonetheless doubt this, argue that China’s rise will be stopped by the “middle-income trap” – a set of constraints which often stop countries breaking through into higher levels of economic development. Singapore shows that these constraints can be overcome, but even if China does get stuck at the middle income level, its economy would still be double its present size, and hence far bigger than America’s.
That is because of the sheer size of China’s workforce. This is the key driver of China’s challenge to US economic preponderance, and the underlying reason why China is so likely to become the world’s biggest economy before much longer, whether we like it or not. And whether we like it or not, wealth brings power. National power is a complex thing, and can be manifest in many different ways. But history very clearly suggests that it has only one ultimate source, and that is the size of a nation’s economy. The world’s richest country will be the most powerful too.
WHAT does this mean? Will China’s economy give it the power to “rule the world”? Not at all. China will probably never achieve a global position as dominant as America has enjoyed for much of the last hundred years. This is because it will be hemmed in by many other rich and powerful states – including America itself. China will have to share power with countries which are weaker, but still powerful enough to impose real constraints on it.
By the same token, however, this shows why America has to start taking China more seriously now. America remains richer and stronger than China today, but that doesn’t mean it can keep leading in Asia as it has done for decades until China eventually catches up.
Even if it stopped growing tomorrow, China’s economy is already bigger relative to America’s than the Soviet Union’s ever was during the Cold War. It is already strong enough to challenge America’s position in Asia, as it is now so plainly doing. It is urgent for America to work out how to respond.
The writer is professor of strategic studies at the Strategic and Defence Studies Centre, Australian National University.
This story was first published in The Straits Times on Nov 27, 2013