Foreign Policy – In the middle of 2001, Gordon Chang predicted in his book, The Coming Collapse of China, that the Communist Party would fall from power within a decade (and probably by 2006), in large measure because of the changes that accession to the World Trade Organization (WTO) would cause. A decade has passed; the Communist Party is still in power. In an article in the Foreign Policy journal Gordon Chang updates his prediction and says that 2012 is definitely the year of the collapse of growth in the Chinese economy and the fall of the Communist Party.
China outperformed other countries because it was in a three-decade upward supercycle, principally for three reasons. First, there were Deng Xiaoping’s transformational “reform and opening up” policies, first implemented in the late 1970s. Second, Deng’s era of change coincided with the end of the Cold War, which brought about the elimination of political barriers to international commerce. Third, all of this took place while China was benefiting from its “demographic dividend,” an extraordinary bulge in the workforce.
Nextbigfuture has discussed why China doomer Gordon Chang has been wrong and is still wrong I will add three predictions, that China’s economic growth will not drop below 7% for the next two years and not below 6% growth in 2014-2016 and that the communist party will remain in power for at least the next five years and that Gordon Chang will predict the downfall of the Chinese economy and the communist party every one of those years.
Chang claims the following will cause China’s downfall
1. The Communist Party has turned its back on Deng’s progressive policies. Hu Jintao, the current leader, is presiding over an era marked by, on balance, the reversal of reform. Strengthening “national champion” state enterprises (like Baidu instead of Google) at the expense of others, Hu has abandoned the economic paradigm that made his country successful.
NBF- I do not see this favoritism as being fatal to Chinese growth.
2. The global boom of the last two decades ended in 2008 when markets around the world crashed. The tumultuous events of that year brought to a close an unusually benign period during which countries attempted to integrate China into the international system and therefore tolerated its mercantilist policies. The country, for instance, could be the biggest victim of the eurozone crisis.
China can weather weaker export markets
Weaker export markets will hurt but the US and Europe will still import from China. China is taking measures to stimulate internal demand which is what is needed over the next few years anyway.
Notice there was a drop of up to 10% in exports in 2009 because of world economic problems.
The U.S. housing meltdown and Europe’s debt crisis are pushing exporters to diversify beyond slow-growing advanced economies. As the EU’s growth declines, it’s dragging down exports from Asia. Singapore’s exports dropped the most in 30 months in October. Chinese exports grew at their weakest level in eight months in the same month. Its shipments to Europe fell 9% month-over-month. Chinese manufacturers are “trying to compensate for the decline in exports by selling more to the mainland market.
In December, 12 industries, including petroleum refining and coking, apparel, shoes, fur and feather products manufacturing, agricultural food processing and food production, enjoyed a PMI over 50 percent, while sectors such as facility manufacturing, general equipment manufacturing, and industrial chemicals manufacturing registered under 50 percent.
China’s economic growth in 2012 is expected to start at a slow pace in the first quarter, but gradually move faster during the rest of the year.
3. China, which during its reform era had one of the best demographic profiles of any nation, will soon have one of the worst. The Chinese workforce will level off in about 2013, perhaps 2014, according to both Chinese and foreign demographers, but the effect is already being felt as wages rise, a trend that will eventually make the country’s factories uncompetitive. China, strangely enough, is running out of people to move to cities, work in factories, and power its economy. Demography may not be destiny, but it will now create high barriers for growth.
China is still at about 50% urbanization. China can still increase rural productivity and move people from rural to urban areas. At 1-2% urbanization per year, China can still urbanize to the 90% level and grow the urban workforce for the next two to three decades even with an aging or declining population.
The China doomers have for a long time pointed out the problem of underemployed migrant workers. That there would not be enough jobs for the tens of millions coming from the countryside. Now Chang is saying this will flip so quickly that there will not be enough workers. When China gets to 80% urbanization then this will start to be a problem.
China is starting up a program of massive automation. Foxconn will replace 500,000 workers with 1 million robots over the next 3 years. Thus maintaining or increasing manufacturing cost advantages and reducing dependence on labor.