Is this the end of China’s rise?

Sierra Leone Telegraph: 30 January 2016

china3China is staring economic stagnation in the face, and the ruling Chinese Communist Party (CCP) is panicking.

The segment of society the CCP fears most – its younger people with their Internet capability and changing political and cultural outlook, represent a critical demographic the Party finds itself increasingly beholden to, says Daniel Lynch, writing in the Foreign Affairs Magazine.

Author and academic Daniel Lynch says the end of China’s rise does not mean the country will collapse.

The dramatic shift the country is experiencing is more comparable to Japan’s deflationary spiral out in the 1990s after a phenomenal rise than the dissolution of the Soviet Union.

However, says Lynch, Chinese society is far stronger relative to the state, than it has been during previous periods of economic slowdown.

Particularly, one as serious as the current economic cycle, and reigning in political dissatisfaction through coercion and violence, will prove more difficult for the Chinese Communist Party.

china2For the past three months, uncertainty over the course of Chinese development has intensified, with a steady flow of mostly bad economic news: yet another plunge in the stock market, which was already crumbling and kept afloat only by massive state intervention; mounting corporate debt; and a hemorrhaging of foreign exchange reserves, to name a few.

The party appeared to have acknowledged the seriousness of its economic woes, which can only be worsened by a declining and aging labor force, when it announced in late October that it would replace its decades-old one-child policy with a two-child policy in March.

china economy1China desperately needs more young people not only to fill the factories and staff the offices and schools, but also to increase consumption so that the country can shift from an investment- to a domestic consumption–led model of economic development.

But such a strategic shift cannot possibly succeed in time to prevent China’s rise from ending.

 

Not only must there be a period of time after slashing investment (which is only barely beginning now) to allow private consumption to step in to fill the void in demand, but slashing investment itself will also reduce demand for consumption in absolute terms.

People will lose their jobs, and the already heavily indebted corporate sector will earn less money to invest in sectors that genuinely need investment.

No country in history has relied as heavily on investment to both fuel GDP growth and maintain the existing structure of GDP in China.

This thought provoking article by Daniel Lynch – titled ‘China: Still powerful but less potent’ was published by Foreign Affairs on January 11, 2016.

About the author:

Daniel C. Lynch is an Associate Professor of International Relations at the University of Southern California and is a member of the USC US-China Institute Executive Committee. Lynch is the author of two books: Rising China and Asian Democratization: Socialization to “Global Culture” in the Political Transformations of Thailand, China, and Taiwan (Stanford University Press, 2006) [paperback edition: August 2008)], and After the Propaganda State: Media, Politics, and “Thought Work” in Reformed China (Stanford University Press, 1999).

He has published scholarly articles in such journals as The China Quarterly, International Studies Quarterly, Pacific Affairs, and Asian Survey. Lynch’s current research focus is how Chinese elites are envisioning the future of China’s domestic politics, international relations, economy, environment, and culture.

Continue reading this article at the publisher’s website

Courtesy of Probe International.

1 Comment

  1. one cannot understand Daniel Lynch’s statement saying the end of china’s rise does not mean the country will collapse. End – what end, if i may ask?

    The country’s transformation does not signal an end to Beijing’s advancement, in fact it enhances it. china’s deliberate adjustment from export-led manufacturing and investment to domestic demand and services is already spearheading the country into becoming an advanced economy, springing the middle-income trap.

    This is yet another stage in its rise, not a demise. secondly it is wrong to say the chinese experience is more comparable to Japan’s deflationary spiral. The latter’s over-capacity investment created an unsustainable asset-price bubble that burst so remarkably.

    Beijing has no such bubble. Japan fell into that deflationary spiral when people stopped buying stuff. unlike china that now leads the world in consumption – even surpassing america – in many spheres: luxury goods, cars, wine, etc, etc.

    In growth rates, china is technically in double-digit growth, whereby its current 6.5% GDP is tantamount to about 11.5% currently equivalent to the 2007/08 national income scales.

    That pronouncement cannot be readily noticed in today’s figures because the economy has simultaneously grown larger, disguising the effect.

    Mr. Lynch also made mention of china’s stock market plunge. Yet the academic must be aware that the stock market fall has very little or no effect on the real economy – they are somehow decoupled. Further to this: Daniel Lynch also wrote that the shift to consumption cannot possibly succeed in time to prevent china’s rise from ending.

    That is wrong, for that shift to services/consumption from manufacturing/investment would insulate the country from external shocks, relying it more on its own inventions.

    For example, most of its capital is raised domestically, also its stock market relies more on the ‘A’ shares offered only to chinese nationals on the shanghai market. Foreigners buy stock ‘H’ shares on the Hong Kong Bourse.

    China’s advance continues apace: its currency the yuan has now joined the IMF’s basket of currencies [in third place just behind the Dollar and Euro – above the British Pound, and Japanese Yen], and is still one of the world’s fastest growing economies.

    In fact in purchasing parity terms, the chinese economy at 11.5 trillion dollars is bigger than the US’s at 17 trillion Dollar.

    If all these scenarios indicates the end of china’s rise, then I am afraid, I don’t know what the world is coming to.

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