China’s economic growth has been both impressive and stable since the 1980s, and many argue that the picture will remain same for decades to come. But this decade China will go through a massive negative transition, defying such argument.
The negative transition will take roots in political institution, demography and export markets, the very elements that have carved the success story of China.
Talking about political institution, China is the largest Communist regime which has aimed for ‘growth at any cost.’ This motto has largely helped China to grow at double digit pace, build world class infrastructure, road and rail networks, and telecommunication, but at the same time it has fuelled ire in China’s population for the regime as human rights are often disregarded, no check is in place on growing inequality, government spends less on social welfare, and the country has no such thing as ‘voice of the people.’
Of late, that ire has surfaced against one party rule and a growing wealth gap. Signs of political chaos are visible and it will only grow further as export market – a major source of economic growth and a cushion for China’s leaders in times of public protest– is likely to decline.
China is the largest exporter in the world, with huge trade surplus. That golden age of China is on the verge of ending. Population has started growing old, which has led to the vacancy of many jobs; as a result, wages have gone up ending the period of cheap labors which played a crucial role in China’s growth story. With the rise in wages companies will elevate their products price to compensate the increased wages which will cause a damaging effect on export markets.
The other damaging effect of aging population is the rise of pensioners. As the youth is almost disappearing, it will be a hard decade for China as it will confront the challenge of paying to an increased amount of pensioners at a time when productivity and export market is on the decline. A parallel challenge that will come with it, is public protest. Chinese govt. will try to stabilize political institution, suppressing protest by spending more on public welfare keeping economic growth at stake.
China has definitely nothing in its favor right now. The deadly trio that is growing public protests against a communist regime, an aging population, and the rise in prices leading to decline in exports may cut China’s three-decade long growth streak. However, its economy will not collapse and will grow somewhere between 6% and 7%, given its strong economy. But for a country with such a large population, 6% growth looks like a dire situation.
2012 may be Year of the Dragon, but the coming decades will definitely be hard for the Dragon.