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Don't Worry America: China Is Rising But Not Catching Up

December 31, 1969 posted by Steve Brownstein

by Michael Beckley

Most Americans fear that China will soon surpass the US in global power and economic clout. But this widespread view is wrong, based on sloppy analysis and outdated conceptions of national power. People who believe that China is overtaking the US make at least one of three mistakes.

As President Obama made clear during his recent tour of Asia, the United States is committed to countering China's rise in the region. But can it succeed?

Most people think not, and understandably so. While China's economy grows at 9 percent per year, the US reels from economic recession and political paralysis. US opinion polls consistently show that majorities of Americans believe China is the world's dominant economic power. And according to the Pew Research Center, pluralities in 15 out of 22 countries believe that China will overtake the US as the world's superpower.

But this widespread view is wrong, a fabrication based on sloppy analysis and outdated conceptions of national power. People who believe that China is overtaking the US make at least one of three mistakes.

First, they confuse growth rates with total growth. Since 1991, China's per capita income grew 15 percent annually, and its military spending rose 10 percent annually. By contrast, America's per capita income and military spending grew at annual rates of 4 percent and 2 percent respectively. Yes, 15 is greater than 4, and 10 is greater than 2. What could be simpler?

But growth rates are not comparable. The average Chinese income in 2010 was $7,500. Fifteen percent of $7,500 is actually less money than 4 percent of $47,000, the average American income that year. Despite China's higher growth rates, the average Chinese citizen is $17,000 poorer compared with the average American today than he was in 1991.

Over the same time period, Chinese military spending declined by $140 billion relative to America's, even when excluding funds for the wars in Iraq and Afghanistan. China's growth rates are high because its starting point was low. China is rising, but it is not catching up.

Second, many observers rely on flawed indicators to gauge Chinese economic power. For example, some analysts believe that China is the world's "leading technology-based economy" because it exports more high-technology products than any other country.

But Chinese high-tech exports are not very Chinese and not very high-tech: Over 90 percent are produced by foreign firms and consist of imported components that are merely assembled in China. These percentages have increased over time, a trend that suggests Chinese firms are falling further behind foreign competitors. Indeed, in any category "research and development, patents, profits" Chinese high-tech firms have fallen further behind their American counterparts over the last two decades.

Another misleading statistic is China's debt-to-GDP ratio, which the Chinese government lists at 17 percent. America's debt-to-GDP ratio, by contrast, will remain above 60 percent through 2020.

But most Chinese state spending is not reported in official figures because it is funneled through investment entities connected to local governments. Studies that account for this spending place China's debt-to-GDP ratio between 75 and 150 percent.

And things are only likely to get worse for China. Because of the one-child policy, China will soon suffer the most severe aging process in human history. The ratio of Chinese workers per retiree will plummet from 8:1 today to 2:1 by 2040. The fiscal cost of this swing in dependency ratios alone may exceed 100 percent of China's GDP. The American working-age population, by contrast, will expand by 17 percent over the next 40 years. America's fiscal future may not be bright, but it is brighter than China's.

Finally, people tend to conflate size with power. China will soon boast the largest economy in the world, and many observers interpret this event as a power transition between the United States and China.

But size is not power. After all, China was the world's largest economy during its "century of humiliation" when it was ripped apart by Western powers and Japan. Britain, by contrast, ruled a quarter of the globe in the 19th century but was never, even at its peak, the largest economy. In fact, Britain's GDP was half the size of China's and far smaller than India's when it invaded and subjugated both nations.

Of course, China's size makes it an important player on transnational issues, particularly climate change and trade. Moreover, China's military can threaten the United States without catching up, compensating for technological inferiority with asymmetric strategies and a greater willingness to take risks and bear casualties.

But China is not an emerging superpower in the mold of the Soviet Union, nor is it a great power like early-twentieth century Germany. It is a large developing country and will remain so for the foreseeable future. Americans, therefore, should not fear China. But neither should they shy away from competing with this rising power for influence in Asia.

 

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