Audience members at the “Best of IMCA” seminar series in Denver were once again reminded that they’ll soon report to their Chinese overlords. While Dr. Paul Tiffany was quick to note in his Thursday morning session that he “is not a bull on China” due to structural issues that will soon metastasize within the country, he nonetheless pointed to startling statistics that make the case for a “Chinese century” over the next 100 years.
The presentation, titled “The United States and China in the Global Economy—Where Are We Going?” began with a topical question about the impending fiscal cliff the domestic economy will encounter, and whether or not the United States will take the plunge.
“We’ve gone from the Greatest Generation to something akin to Japan’s Lost Decade, which is now a Lost Generation as it’s gone on for 20 years,” Tiffany, adjunct professor at The Wharton School, University of Pennsylvania, and the Haas School of Business of the University of California, Berkeley, explained.
Echoing recent comments from PIMCO CEO Mohamed El-Erian, he added that we are “currently witnessing the greatest global economic shift in 100 years, with assets and growth moving from the developed world to emerging economies.”
These emerging-market countries were left behind during the Industrial Revolution due to political, economic and cultural barriers. But with globalization, in conjunction with a revolution in communication and Internet technology as a “game-changer,” they are now catching up.
“China began to move under the radar in 1978, and over the last 10 years its economic power has really been felt,” Tiffany said. “Emerging markets like this are the markets of the future and have begun to dominate, while developed countries are stagnant.”
He then noted that Spain dominated in the 16th century, Holland in the 17th century, France in the 18th century, Great Britain in the 19th century and the United States in the 20th century.
“Who will be the dominant power in the 21st century?” he rhetorically asked before naming several possibilities including China, the rest of the BRIC countries (Brazil, Russia and India) and even Turkey, Indonesia and Vietnam. “In fact the game might be over already, as China’s share of the world’s GDP will reach that of the United States by 2016.”
After sharing a brief history of the People’s Republic of China, beginning with Mao (a revolutionary) to Deng Xiaoping (a statesman) to Jiang Zemin (a modernizer), Tiffany noted the aforementioned problems he believes will hamper China’s growth, including:
- 4-2-1—Most Chinese families have four grandparents, two parents and one child. With the “one child” policy still in place, the demographic burden is increasingly a concern
- A possible bubble in the banking and financial sectors
- Questions over the country's long-term energy supply
- Corruption throughout the government that is leading to civil unrest
- Taiwan and its future, as well as historical friction with Japan
“We have to ask ourselves if China is already in a secular decline,” he added. “GDP growth from 1995 to 2010 averaged 9.9%. By 2026 through 2030, it will have declined to an average of 5%.”
He then listed his top 10 key issues to watch for in China’s future. They are:
- The level of political participation by the general population, as well as transparency in government
- The social unrest in rural regions due to the growing inequality that’s resulting in “two Chinas”
- Trade tensions with the USA, EU and other nations
- Revaluation of the Chinese currency (over 20% since 2005)
- The boosting of internal consumption
- The level of infrastructure development
- Relations with its Asian neighbors
- Establishment of a value system beyond wealth
- Cultural issues that include more freedom of expression and individualism
- Aging of the population, along with gender and health issues
“So where is China going?” he asked in conclusion. “Sure, it could have a hard landing or a soft landing, but it might just have no landing and be able to continually refuel in midair.”