Will China really dominate?

Taking account of environmental change and other problems shows that the world will be multi-polar, not China-centric, writes Sean Harkin


The complex organised societies historians call ‘civilisation’ first appeared in Mesopotamia – modern day Iraq – around 3300 BC. They subsequently appeared, quite independently, in northern China, the Indus Valley, Mesoamerica and the Peruvian highlands. These were the six ‘primary civilisations.’

The material development of these societies has been scored by historian and archaeologist Ian Morris on a Social Development Index, taking account of energy use, urbanisation, military capability and information management. He finds that, for most of history, the West – that cluster of civilisations in the Middle East and Europe originating from ancient Mesopotamia – has been the most developed and China has been a close second.

This makes sense: Mesopotamia was the first primary civilisation and China was second. But the pattern was not entirely predetermined. The West’s lead collapsed and China pulled ahead as the Roman Empire declined and fell in the 5th century AD. The gap narrowed as China and the West both experienced crises in the 14th century, but China remained more advanced. In the 17th century, China and India may have accounted for 60-70 percent of world GDP.

Europe took the lead after the industrial revolution in the 18th century. Between 1820 and 2000, the real incomes of Europe and its offshoots rose twenty-fold. China, meanwhile, failed to modernise and was thrown into internal conflict and destruction by Anglo-French imperial ventures. The Communists came to power in 1949 and restored some economic growth, but at the cost of extreme oppression and inefficiency.

Since 1978, China has moved gradually from Communism to a form of ‘state capitalism.’ In the process, it has achieved rates of economic growth sometimes exceeding 10 percent.

It remains far from the technological frontier and so has much room to grow, despite macroeconomic imbalances that may slow its average pace to a more modest 6-8 percent. China looks set to take the lead again.

China’s rise: the current view
From the current starting point, if we measure GDP at market exchange rates (the measure most relevant for external influence), assume that the US grows at 2.5 percent per annum and that China grows at seven percent per annum, then we find that China’s total GDP overtakes the US in 2029. Using different assumptions, Goldman Sachs have put the date as early as 2019.

As its economy expands, China’s geopolitical and cultural influence will increase. Capital controls are being eased so that the Chinese currency and assets denominated in it can become a mainstay of finance, trade and global reserves – with all the influence that entails. Chinese investors are acquiring vast tracts of land in Africa and a quiet Chinese economic and demographic infiltration of the Russian Far East is under way. In a region where Russians themselves are thin on the ground, Moscow fears that Chinese companies backed by Beijing will eventually control the reality on the ground.

Commentators imagine we are at the dawn of a Chinese century. They believe that, just as the US eclipsed the British Empire in shaping the world order, China will soon eclipse the US. Eventually, India may rise to second place, leaving the US in third.

In many ways, this would represent a return to the natural order of things. With their huge populations, it is natural that China and India will tend to be the biggest economies. This is an inevitable result of everyone converging to the technological frontier as know-how disseminates, and it is welcome to anyone who would like to close wide gaps in per capita incomes. After a century and a half of external meddling, civil war, revolution and Communist brutality, it restores China to its natural place as one of the leading lights of civilisation.

A more realistic picture
Both the extent of influence that will accompany Chinese prosperity and the speed with which it will come about are exaggerated. China will never replicate the unique influence achieved by the United States after 1945. At the end of the Second World War, the US accounted for 50 percent of world industrial output – its manufacturers had been boosted by the war while those of Europe had been bombed. It was an established democracy and was seen as a benign liberator. It was able to rebuild trade and finance in its own image.

Its goods and ideas permeated world markets – partly as a result of economic aid programmes to forestall Communism in Europe. These circumstances are unlikely to be repeated.

In the next decade or so, economic imbalances relating to over-investment, thin and volatile financial markets, inflation and corruption will slow China down. Politically, it will be focused on addressing inequality and distracted by the turmoil that is likely as development leads to democracy. Even when China becomes the largest economy, its vast population will mean that per capita incomes are far below the West. As a still-poor country it will be less of a model to any other country whose citizens are even slightly richer.

Perhaps most significant of all, environmental degradation will pose a huge challenge for material development in China. Today, water is being heavily polluted and over 60 percent of Chinese river water is contaminated to the point where it cannot be used for domestic purposes. Meanwhile, over-use of water resources due to huge populations and inefficient forms of irrigation is causing aquifers to fall rapidly in the relatively drier north of the country. Aquifers can be irreversibly damaged as sediment that has been drained of water subsides and shrinks in volume, leaving less capacity for recharge by rainfall. For one reason or another, two-thirds of Chinese cities now have water shortages.

Further ahead, the Himalayan icecap will melt partly or completely as global warming takes effect – causing the flow of some major rivers to first increase and then decrease. The Yellow and Yangtze rivers have relatively less dependence on Himalayan runoff than other major Asian rivers, but will still be adversely affected. Shifting rainfall patterns may increase both the dryness of the north and the wetness of the south – but much of the extra rainfall in the south may be lost through floods. Huge low-lying cities like Shanghai, Tianjin and Guangzhou will come under pressure from rising sea levels that may force 70-80 million people to move.

These problems will not halt the rise of China. It can take steps to use water more efficiently and control pollution that would greatly increase its effective water supply and counterbalance the effects of climate change and declining aquifers. Cities can be partially moved or protected with sea walls. But it is clear that the costs of adjustment and tight water supplies will place a drag on growth.

In India, the Ganges and Brahmaputra rivers in the north are relatively more dependent on Himalayan meltwater than the rivers of China. At the same time, some of the worst aquifer depletion in the world takes place in India. Water stress may slow the rise of India more than that of China.

Other countries will be affected very differently by climate change. The so-called Northern Rim Countries (NORCs) around the Arctic Ocean should all benefit. These consist of Russia, Canada, Norway, Denmark (via Greenland) and the United States (via Alaska). Thawing of their northern tundra will free up huge areas for farming, mining and urban development. Recession of the polar icecap will open up new sea lanes and, ironically, permit drilling for oil and gas under the Arctic seafloor. The NORCs have huge reserves of freshwater that will be increasingly valuable in a water-stressed world.

Given historical trends and structural conditions in today’s biggest economies, economists envisage average growth over the period to 2050 running somewhere around 2 to 2.5 percent per annum in the US and Canada; 1.5 to 2 percent in Europe; 1 percent in Japan; 8 percent in India; 7 percent in China, 4.5 percent in Brazil and 4 percent in Russia. But economists only take account of economic factors. Allowing for the effects of environmental change, we can perhaps subtract 2 percent from the Chinese growth rate and 3 percent from India. This would be in line with analysis showing that a temporary drought shaved 1.5 to 2 percent off Australian GDP growth in 2002.

At the same time, we can easily add 2 percent to growth in Russia and Canada due to the vast opportunities that will open up in their northern regions and perhaps 0.5 percent to the United States (smaller due to the smaller weight of Alaska relative to the rest of its economy). In the case of Russia, these numbers assume that its current demographic decline is counterbalanced and gradually reversed by the effects of an Arctic windfall, and that it can maintain effective control of its Far East region.

These differing sets of assumptions produce radically different pictures of the world in 2050. Ignoring the effects of environmental change, China will be by far the largest economy, with a GDP that is 40 percent of the total for the top twenty economies. The US will be second with a GDP well under half that of China. India will be third and Brazil will be fourth. Taking environmental change into account, China and the US will be neck-and-neck with 24 percent each of the GDP for the top twenty, Russia will be third, Brazil fourth and India fifth. Most of China’s catch-up will happen early, prior to 2030; before climate change really bites. Interestingly, Canada will have overtaken all of the major European powers to become seventh.

Obviously, we have to be careful with this kind of analysis for the same reason we have to be careful with any economic analysis – the need to make assumptions. But it shows how even small effects on differential growth rates can significantly change the outcome. Taking proper account of the changing physical environment shows us that the world in 2050 will not be centred on East Asia. Rather, it will be a multi-polar place in which several leading centres shape world affairs. China and the US will be the biggest economies. The European Union, if it can hold together and develop a better monetary and fiscal regeime, will be a substantial third. Russia, Brazil, India, Japan and Canada will also matter.

Various ‘wild cards’ could, of course, change large parts of the picture. Climate change could have abrupt effects. Conflict between China and Russia triggered by gradual Chinese infiltration of the Russian Far East could be cataclysmic for both – and for others. Conflict between India and Pakistan triggered by upheaval in Pakistan as changes to the Indus River compound political and religious tensions could have similar effects.  The Middle East is always a potential source of geopolitical shocks. But the most likely outcome appears to be a multipolar world of the kind I have outlined.

We should also be cautious with the idea that climate change will benefit some major economies. Climate change will almost certainly be a net negative for the world economy overall and, if nothing is done, its effects will become more and more pronounced as the century wears on. Eventually, we will not be talking about benefits to some and costs to others but different levels of cost to all.

Living in a multipolar world
What lessons should we draw for the conduct of world affairs in the 21st century? The most important is that it can be difficult to achieve international coordination in a world where there is no one leading power.

One historical comparison is the few decades before the First World War. This was a time of peace, prosperity and integration – but it also featured imperial competition and ultimately total war. In a world that is more interconnected than ever before and in which significant environmental challenges loom, improving global governance should be an urgent priority.

Another lesson is that the US and other powers should accommodate the rise of China, not resist it. China will not become over-dominant in any likely scenario and is likely to end up with a smaller share of global GDP than many predict. But it is still self-consciously a rising superpower. It will be more likely to integrate cooperatively into the global system and adopt international norms of governance and human rights if it is accorded respect and influence proportionate to its size.

Over all future time horizons, technological progress and economic growth are likely to continue for most (and eventually all) of mankind. But a multipolar world order in the current century is likely to make politics and international relations more uncertain. It will be more difficult to achieve cooperation on the big issues of the day – making it more important that we try harder.