China's Prospects

As the Beijing Olympics approach, there is a lot stuff in the media about the rise of China. The Carnegie Endowment's Bert Keidel has just put out a very solid but remarkably optimistic piece on this subject. According to his study, China's economy will surpass that of the United States by 2035 and be twice its size by mid-century. China's rapid growth is driven by domestic demand—not exports—and will sustain high single-digit growth rates well into this century.

Key Conclusions:

• Potential stumbling blocks to sustained Chinese growth—export concerns, domestic economic instability, inequality and poverty, pollution, social unrest, or even corruption and slow political reform—are unlikely to undermine China's long-term success.

• China's financial system, rather than a shortcoming that compromises growth potential, is one of the strengths of what the report calls "China's money-making machine," in part because of its ability to support the financing of infrastructure and other public investments necessary for sustained rapid growth.

• A Chinese economy that eclipses the U.S. by mid-century has both commercial and potential military implications. China will be the preeminent world commercial influence. China's military capabilities are a small fraction of the United States' today, so there is time to prepare for a very different world in fifty years, says the report.

• American policy makers should take this opportunity to enact wide-ranging domestic reforms and rethink their concepts of global order.
"China's economic performance clearly is no flash in the pan. Its growth this decade has averaged more than 10 percent a year and is still going strong in the first half of 2008. Because its success in recent decades has not been export-led but driven by domestic demand, its rapid growth can continue well into the twenty-first century, unfettered by world market limitation. China's likely continued success will eventually bring an end to America's global economic preeminence, requiring strategic reassessment by all major economies—especially the United States, the European Union, Japan, and even China itself."

The full report may be accessed at: http://www.carnegieendowment.org/files/pb61_keidel_final.pdf