Economist Arvind Subramanian thinks Chinese economic dominance is a sure thing within the few decades. He’s a fellow at the Peterson Institue for International Economics, and the Wall Street Journal just interviewed him about his book, Eclipse: Living in the Shadow of China’s Economic Dominance.The book opens with this scenario (via WSJ):
It’s 2021 and the U.S. president heads across town to the International Monetary Fund to sign a rescue loan package negotiated by the IMF’s Chinese managing director. “The handover of world dominance is complete,” Mr. Subramanian, a former IMF researcher, writes. China is now the world’s leading economic power.
In a nutshell, his theory is that economic dominance is simply defined as the economic means a country has to get other countries to do what it wants. In his book, Subramanian goes back to 1870 and analyses the U.S., the U.K. and China based on three factors- a country’s GDP, its trade, and the extent to which it is a net creditor to the rest of the world. Put together, he said, the U.S. is waning, and China is coming up strong.
Subramanian told WSJ: “The way economic convergence between the U.S. and China is evolving, the fact that China will catch up is inevitable. At end of 20 years, China will have a GDP per capita of only 40-50% of the U.S. But China has four times the population of the U.S., so the Chinese economy will be much larger overall. The arithmetic is undeniable.”
By Subramanian’s estimation, economic size is economic power. Even now, the country exercises power by undervaluing the yuan. The West needs to bind the country to a multi lateral system, he says, before it becomes to strong.
Not to say that he doesn’t know China faces serious challenges — an ageing population, overly cheap capital, over developed exports, pollution and more. Because of those, he thinks China’s growth will slow to 7% per year.
And then there’s one more thing. Politics. If class divisions and repressive government policies create massive unrest, “all bets are off.”
You can check out a paper adapted from the book here.