China at the peak - by Noah Smith - Noahpinion - 0 views
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We thus have the privilege of seeing a great civilization at its peak
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How much greater would China’s peak have been if Deng Xiaoping had sided with the Tiananmen Square protesters, and liberalized China’s society in addition to its economy? How many great Chinese books, essays, video games, cartoons, TV shows, movies, and songs would we now enjoy if it weren’t for the pervasive censorship regime now in place? How much more would the people of the world have learned from Chinese culture if they could travel there freely and interact with Chinese people freely over the internet? Without a draconian autocrat like Xi Jinping at the helm, would so many Chinese people be looking to flee the country? Would the U.S. and China still be friends instead of at each other’s throats?
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China’s drop was much much bigger; the Japan of the 80s was never the export machine people believed it to be. Both countries turned to investment in real estate and infrastructure as a replacement growth driver — although again, China did this much more than Japan did. Essentially, China did all the the things we typically think of Japan as having done 25 years earlier, but much more than Japan actually did them.
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Yes, for those who were wondering, this does look a little bit like what happened to Japan in the 1990s
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Already the country is not growing much faster than the G7, and as the ongoing real estate bust weighs on the economy, even that small difference may now be gone. The country’s surging auto industry is a bright spot, but won’t be big enough to rescue the economy from the evaporation of its primary growth driver.
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Even if it manages to climb up to 40%, that’s still a fairly disappointing result — South Korea is at 71% and Japan at 65%
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There’s one main argument that people make for a quick Chinese decline: rapid aging. But while I don’t want to wave this away, I don’t think it’s going to be as big a deal as many believe
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This is another example of China’s peak being both awe-inspiring and strangely disappointing at the same time.
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it seems likely that China’s growth will now slow to developed-country levels, or slightly higher, without much prospect for a sustained re-acceleration
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when people contemplate Chinese decline, they’re not asking whether its economy will shrink; they’re asking whether its relative economic dominance and geopolitical importance will decrease.
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If we just casually pattern-match on history, the answer would probably be “not for a long time”. Most powerful countries seem to peak and then plateau. Britain ruled the waves for a century.
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U.S. relative power and economic dominance peaked in the 1950s, but it didn’t really start declining until the 2000s
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Japan and Germany had their military power smashed in WW2, but remained economic heavyweights for many decades afterwards.
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When the Roman Empire declined, it got a lot poorer. But in the modern economy, countries that decline in relative terms, and in geopolitical power, often get richer
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he total fertility rate has been low since even before the one-child policy was implemented, but recently it has taken a nose-dive. Two years ago, the UN put it at 1.16, which is 40% lower than the U.S. and 22% lower than Europe
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The country’s total population only started shrinking this year, but its young population started falling sharply 20 years ago, due to the echo of low fertility in the 80s. The most common age for a Chinese person is now about 50 years old, with another peak at 35:
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The first reason is that power is relative, and China’s rivals have demographic issues of their own. The U.S., Europe, India and Japan all have higher fertility than China, but still below replacement level
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demographics aren’t actually going to force Chinese power or wealth into rapid decline over the next few decades.
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third of all, evidence suggests that population aging is really more of a persistent drag than a crisis or disaster.
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Second, demographics won’t take away China’s biggest economic advantage, which is clustering and agglomeration effects. Asia is the world’s electronics manufacturing hub. It’s also by far the most populous region in the world, giving it the biggest potential market size
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China will act as a key hub for that region, in terms of trade, supply chains, investment, and so on. China is shrinking, but Asia is not
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As a result, there are suddenly many fewer Chinese people able to bear children, which is why the actual number of births in China has fallen by almost half since 2016:
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we’d find that every percentage point of the senior population share that China gains relative to other countries might reduce its relative economic performance by about 1.15%. That’s not a huge number.
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Now, if we look at the research, we find some estimates that are much larger than this — for example, Ozimek et al. (2018) look at specific industries and specific U.S. states, and find an effect on productivity that’s three times as large as the total effect on growth that I just eyeballed above. Maestas et al. (2022) look at U.S. states, and also find a larger effect. But Acemoglu and Restrepo (2017) look across countries and find no effect at all.
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On top of that, there are plenty of things a country can do to mitigate the effects of aging. One is automation. China is automating at breakneck speed,
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A second is having old people work longer; China, which now has higher life expectancy than the U.S., is well-positioned to do this.
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Finally, aging will prompt China to do something it really needs to do anyway: build a world class health care system
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this would help rectify the internal imbalances that Michael Pettis always talks about, shifting output from low-productivity real estate investment toward consumption.
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To realize its full potential, Altasia will need integration — it will need some way to get Japanese and Korean and Taiwanese investment and technology to the vast labor forces of India, Indonesia, and the rest
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the most likely outcome is that China sits at or near its current peak of wealth, power and importance through the middle of this century at least.
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Altasia has more people and arguably more technical expertise than China. And it’s the only alternative location for the Asian electronics supercluster.
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War was the big mistake that Germany made a century ago, so let’s hope China doesn’t follow in its footsteps.
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The story of whether and how that complex web of investment, tech transfer, and trade develops will be the next great story of globalization.
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for Western companies looking for new markets, Altasia will potentially be more exciting than China ever was. The Chinese market delivered riches to some, but the government banned some products (especially internet services) and stole the technology used to make others. Ultimately, China’s billion consumers turned out to be a mirage for many. The economies and societies of Altasia, in comparison, are much more open to foreign products.