The Rise of China - What Does It Mean for the United States? - Seeker's Thoughts

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The Rise of China - What Does It Mean for the United States?

The Rise of China - What Does It Mean for the United States?


As China attempts to shift away from investment-led growth, growth may begin to slow significantly. Without enough room to rely on business investment alone for growth.


Because the causes of economic growth remain poorly understood, many analysts tend to place too much stock in recent performance when extrapolating future trends - this is an error.




China has experienced remarkable economic progress. Since 2001, their purchasing power parity (a better measure of wealth than GDP) economy has expanded five-fold and now ranks only second to that of the United States by some measures. China has managed to lift hundreds of millions from poverty.


Some economists foresee China's future economic growth being approximately flat or lower than it has been, due to China's capital-intensive approach of rapid investment and high levels of fixed asset ownership being unsustainable and leading to sharp decreases in growth rates.


Others view China's future economic prospects more positively, noting the success of the nation's reforms which have raised economic efficiency through profit incentives offered to rural collective enterprises (owned by local governments but operating according to market principles), family farms, small private businesses and foreign investors/traders; furthermore these reforms have shifted growth away from labor towards capital increases and productivity gains.


China has evolved into an industrial powerhouse, with Chinese companies dominating industries they specialize in. Acquiring Western technology to build products for global distribution becomes difficult for foreign firms to match; CFR's Jennifer Hillman notes China's rise as a leader in 5G wireless networks as evidence of this phenomenon.


China has also transformed global trade. Its massive export surplus has led to an imbalanced trade imbalance that has created tension with many major trading partners - most notably the US. A study conducted by economists Xavier Jaravel and Erick Sager discovered that increased U.S. trade with China had cost jobs in manufacturing because increased competition from China has caused wages to decline, making U.S. products less cost-competitive; contributing greatly to our trade deficit with them and fuelling populist political forces in America.




China's military modernization is a driving factor behind its ascension. Since 2013, Beijing has invested in conventional weapons systems, strengthened its navy, upgraded the People's Liberation Army and begun testing nuclear-armed ballistic missiles - increasing the risk of US-China conflict over Taiwan, South China Sea territorial disputes or any number of territorial issues; possibly leading to full-scale war between two of the world's two largest economies and potentially creating massive disruption in global trade and supply chains, sending shockwaves through global trade networks that would ripple throughout global trade networks - something neither nation should take lightly.


China's economic growth since 1978 has been slow but steady (Witt 2019), falling significantly behind that of the US (Fig 2). Both nations rely heavily on economic globalization; exports contributed 12.18% of US GDP in 2018 while 20.12% represented 20 % for China GDP. Mutual assured destruction served as an effective deterrent against any US-China war during bipolar Cold War; similarly it should now serve to prevent either party from undertaking actions that threaten globalisation and its open economy.


However, US-China disputes over trade and other issues will result in policy changes that do impose significant constraints on firms. US tariffs imposed on auto and steel imports into China will raise manufacturing costs; and any restrictions placed upon Chinese firms like telecom equipment maker Huawei and video-sharing platform TikTok may be justified by national security concerns.


China has experienced unprecedented economic expansion over recent years and now owns four of the five global banks - an advantage it is using to pursue its Belt and Road strategy aimed at becoming the dominant regional trading bloc. On the other hand, US warlike behavior - comprising 400 military interventions from 1776 until 2019 alone - may give it cause to respond by employing its own strategy of global engagement and containment against China's rising power.




China's remarkable economic development over the past 27 years has lifted millions out of poverty, transformed China into the world's factory, but at great expense to nature. Smoggy cities, decreasing water supplies, rising desertification rates, and diminishing coastal waters are the result; poorly regulated industrial emissions contribute further air pollution causing birth defects to cancer, while deforestation and overfishing contributes to biodiversity loss.


China has taken several initiatives to address its environmental challenges. Beyond its centrally directed environmental protection efforts, they include policies which support green growth and the use of renewable energy sources. Furthermore, state media outlets have given coverage to environmental issues extensively over time - for instance publishing an influential book about urban air pollution in 2013.


Still, many observers expect environmental conditions across China to deteriorate despite these initiatives. After seeing shocking images of thousands of dead pigs floating down Shanghai's Huangpu River and record-low air quality levels in Beijing last year, more than half of Chinese citizens now rate air pollution as very severe, while four out of ten view water pollution as such a severe issue.


China's past population policies have contributed to this growing anxiety by locking in substantial demographic decline over several decades - something which makes future sustainable development even harder to achieve.


At present, a growing network of legal environmental non-governmental organizations (NGO) is working to address these concerns. Led by Beijing law professor and activist Wang Canfa, these groups train lawyers on environmental laws enforcement; offer free legal advice via a telephone hotline; litigate pollution cases and train lawyers on environmental compliance. As a result, these efforts have successfully brought to light local corruption and incompetence, drawing public awareness to environmental problems more broadly; yet without more commitment from central leaders towards environmental protection measures the problems will persist unaddressed.




China has emerged as a major economic power, boasting the second-highest GDP behind only the US. This shift has profoundly altered our planet's ecosystem and global politics.


The global community must adapt to this new reality, and many scholars and commentators believe China's rise has fundamentally altered global power dynamics (Anngang 2012; Cao and Paltiel 2015; Fish 2017).


China could easily surpass America in economic might if its growth continues at four or five percent annually through 2050; economists generally accept this projection.


But China's economic future remains more precarious. Many of the factors driving its rapid economic development over recent decades may either have run their course or reached their limits, leaving China vulnerable.


At its height, investment accounted for up to 14% of GDP; but demographic trends suggest it will gradually decrease over time as the economy slows; it will likely be replaced by spending on infrastructure which also projects to decline over time.


While China continues its trade war with the US, their government has implemented protectionist policies which limit foreign investment and trade in China as well as abroad. Such restrictions include forcing joint ventures with local partners that control at least 50% of a project to use Chinese labor; restricting technology transfers across borders; forcing joint ventures with local partners that control at least 50% of each project; blocking technology transfer across borders and blocking data flows across borders - predating this current trade war and endangering future investments both domestically and overseas.


Furthermore, China has been pushing a renationalist agenda, creating regional alliances such as Five Eyes and Quad, and forcing other countries to choose sides in regional disputes. All these actions combined with its rivalry with America are raising questions over whether its rise is hastening globalization's decline or creating an emerging regional order.


But we should not assume that these changes will automatically lead to de-globalization or create an unequal power relationship between China and the US. Instead, China's rise could provide an opportunity for peaceful coexistence between two of the world's biggest economies.

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