Via the FT comes Martin Wolf:
Will China emerge as a high-income country still ruled by a communist party state? If China were to achieve this, it would transform a world in which all large, high-income countries are currently democratic. It would reshape the global balance of power, not just economically and militarily, but also politically and ideologically.
…Will China turn itself into a huge Singapore, with high-income levels of prosperity and government effectiveness, but retain one-party rule? Or will its political system, economic progress or, more plausibly, both together, founder? Will Mr Xi go down in history as the man who brought China to the top of the world, or as a Chinese version of Leonid Brezhnev, whose conservatism brought the Soviet system into irretrievable disrepair? It is impossible to know how this will end. The Chinese alone will decide. We only know that it matters for us all. Meanwhile, the west has to look within, to repair its failing democratic system.
It’s not impossible to make an educated guess. Chinese growth is only high because it is massively misallocating capital into empty apartments. This is analogous with the USSR and its self-destructive misallocation of capital into military spending in its dying days.
At a certain point it will end the same way, in crisis, or the way of Japan, in stagnation. This is quite predictable, unless Chinese politics reforms enough that greater capital efficiency becomes possible. There’s not much evidence of that happening. And even that outcome still radically slows growth.
It’s really pretty straightforward. Singapore is a tiny technocratic finance and export state. China is a sprawling and vast continental economy. It can’t go the same way as Singapore without destroying every other exporter on earth. Enter Donald Trump.
That leaves it with domestic dynamism and productivity growth but that takes consistent reform not the placating of interests that keeps a single party state functional. The ascension of Xi the Tyrant is hardly conducive either.
Then China has its enormous demographic challenges.
Nah. China is going to slow and keep slowing and as it does it’s relative economic power will wane. That’s not to say it will not be powerful. It will be. Very. And in some ways that’s the problem. As its soft power wanes, China’s external hostility will grow to shift Chinese Communist Party legitimacy from prosperity to nationalism and its hard power will strike.