Why China’s economy cannot surpass the United States

Editor’s note: This is an opinion piece written by Yi Fuxian for Voice of America. This guest commentary does not necessarily reflect the views of VOA. Please indicate that the reprinter is from Voice of America or VOA.

Recently, Moody’s, an international credit rating company, lowered the outlook for the Chinese government’s credit rating to “negative”. One of the reasons is the increasing risk of a sustained slowdown in medium-term economic growth due to the aging population. Moody’s said that as the population ages, potential economic growth will fall to 3.5% by 2030. The relevant person in charge of China’s Ministry of Finance said, “We are disappointed with this.”

Justin Lin’s exaggerated economic forecasts

The reason why Chinese officials are “disappointed” with Moody’s report is because the official potential economic growth rate is much higher than Moody’s. On August 24, 2020, Xi Jinping hosted an expert symposium in the economic field in Zhongnanhai and listened to the suggestions of nine experts headed by Lin Yifu. 

Subsequently, in the ” Recommendations of the Central Committee of the Communist Party of China on Formulating the 14th Five-Year Plan for National Economic and Social Development and Long-term Goals for 2035 “, it was proposed to achieve the goal of doubling the economic aggregate or per capita income by 2035 compared with 2020.

Lin Yifu explained in ” Great Changes Unseen in a Century and New Structural Economics ” that China’s per capita income (purchasing power parity) in 2019 was only equivalent to 22.6% of the United States, equivalent to Germany in 1946, Japan in 1956, and South Korea in 1985. level. In the 16 years after the corresponding time point, the economic growth rates of these three economies reached 9.4%, 9.6% and 9.0% respectively. 

Even taking into account population issues, China still has the potential to grow by 8% annually in the 16 years after 2019, and by 6% annually from 2036 to 2049; even taking into account factors such as carbon neutrality, trade wars, and technological wars, China still has the potential to grow by 8% annually in the 16 years after 2019.

From 2020 to 2035 and 2036 to 2049, it will be able to achieve an average annual real growth of 6% and 4%, respectively. By 2030, China’s economic size will exceed that of the United States; by 2035, China’s per capita GDP will double that of 2020; by 2049, China’s per capita GDP will be half that of the United States, and its population will be four times that of the United States. The total amount is twice that of the United States. He still stands by those predictions for 2023 .

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In fact, as early as 2005, Lin Yifu predicted that by 2030, China’s population will be five times that of the United States, and its economy will be 1.5-2 times that of the United States . He predicted in 2008, 2011, and 2014 that China’s economy would be 2.5 times , 2 times , and 1.5-2 times that of the United States in 2030 .

Although Lin Yifu’s predictions are always exaggerated without exception, because he can please leaders and deceive the public, he always has a firm say in decision-making.

geopolitical consequences

The predictions of Lin Yifu and others fooled Chinese leaders into arrogance and proposed the “Chinese Dream” of the great rejuvenation of the Chinese nation. In addition, due to the aging of the West, the proportion of the global economy is declining, so Chinese leaders mistakenly believe that by “carrying forward the spirit of struggle”, they can build a “new international order” led by China.

Economy is the basis of diplomacy. John Mearsheimer, a leading figure in “offensive realism”, believes that China cannot rise peacefully. If its economy continues to maintain rapid development in the next few decades, the United States and China will enter into a fierce defense war. Competition may develop into war. He said that if he served as an adviser to the Chinese leader, he would also advise China to “dominate” Asia and “dominate” the world.

China’s “high pressure at home and wolf-like behavior abroad” triggered counterattacks from the United States. The two parties reached a rare consensus and regarded China as a strategic competitor. In 2015, David M. Lampton (formerly chairman of the National Committee on U.S.-China Relations), known by Chinese officials as a “China-knowledge faction”, believed that U.S.-China relations had reached a critical point and expressed concern about the risk of long-term strategic separation. .

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I pointed out in the 2007 and 2013 editions of “Empty Nest of Great Powers” that the demographic structure determines that Japan’s economy is a sprint, the EU is a medium-long run, the United States and India are long-distance runners, and China is an ultra-sprint, and China’s economy will not surpass the United States. From 2004 to 2010, I repeatedly pointed out that 2012 would be an inflection point for China’s population and economy . In 2016, on the way to attend the Boao Forum for Asia, I told the New York Times that China’s economy could not surpass that of the United States because of its aging population. I originally wanted to pour cold water on the fanatical propaganda of populism. As a result, the National Health and Family Planning Commission found a treasure and persuaded the relevant departments to put me on the official blacklist on the grounds of “slandering China”. If Lampton’s and my warnings can be heeded, the Chinese government can step back from the brink and avoid a fierce confrontation between the United States and China in the future.

China’s populism reached its climax from 2020 to 2022, and the COVID-19 clearance policy was regarded as an “institutional advantage.” Official media and self-media were full of anti-American propaganda, and even subway stations changed English translations to pinyin. After abandoning the COVID-19 policy in 2022, China’s economic growth was far lower than expected, and policymakers finally woke up and began to improve relations with the West.

Lin Yifu’s prediction was wrong

In fact, even if China had never implemented family planning, the total population would still not reach Lin Yifu’s prediction. Lin Yifu believes that China’s economic development level in 2019 is equivalent to the level of Germany in 1946, Japan in 1956, and South Korea in 1985. But China’s demographic structure is completely different from those of those countries back then.

An aging population will hinder production, reduce consumption and stifle innovation, thereby weakening economic vitality. The median age and the proportion of people aged 65 and above are strongly negatively correlated with economic growth. The median ages of Germany, Japan, and South Korea were 34, 24, and 24 years old respectively at the corresponding time points, and 35, 30, and 32 years later in the 16th year. In 2019 and 2035, China’s median age was 41 and 49 years old respectively, while that in the United States was only 38 and 42 years old.

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The proportions of people aged 65 and above in Germany, Japan, and South Korea were 8%, 5%, and 4% respectively at the corresponding time points, and in the following 16 years they were 12%, 7%, and 7%. In 2019 and 2035, the proportion of elderly people in China will be 13% and 25% respectively, while in the United States it will be 16% and 22%.

Labor is the backbone of the economy. The labor force aged 15-59 in Germany, Japan, and South Korea did not start to grow negatively until 12, 38, and 31 years after the corresponding time points. However, China’s labor force started to have negative growth in 2012, and the United States did not start to have negative growth until 2048.

In other words, Germany, Japan, and South Korea were in their economic youth at that time, but China is now middle-aged and will soon enter old age. Moody’s forecast that China’s economic growth rate will drop to 3.5% by 2030 is actually too optimistic. China’s age structure in recent years is similar to Japan’s in 1992, and by 2040 it will be similar to Japan’s in 2020. Aging alone will be enough to slow down China’s economic growth rate to about 3% in 2028, and will begin to be lower than that of the United States in 2031-2035.

In the past, young China was catching up with the middle-aged United States. China’s economy increased from 7% of the United States’s in 1990 to 76% in 2021. China’s economy will drop to 66% of that of the United States in 2023. Although it is only a short-term fluctuation, it may be a preview of the economic gap between elderly China and middle-aged America continuing to widen in the future.