Glen Hodgson is a senior fellow at the Conference Board of Canada.
Canadians are understandably riveted on the Canada-U.S. economic relationship, but we need to treat China’s economic rise as a priority, too. China has achieved spectacular economic growth for nearly four decades, thanks to its profound market-based economic reforms and deep integration into the global economy. The Chinese economy is now bigger than that of the U.S. when measured using purchasing power parity (PPP), and is closing the gap quickly at current market exchange rates. Threatened U.S. tariffs on Chinese exports could impede and frustrate short-term performance, but are unlikely to bend China’s growth trajectory.
China has quickly advanced beyond being a location for final assembly in global manufacturing, where it relied upon low labour costs to create a competitive advantage with the rest of the world. Its current and future growth will be based increasingly on consumer demand, and consumption and supply of services as well as goods. China’s potential growth rate is slowly declining, owing both to slower growth in the labour force and to an ever-expanding capital base. Overall growth, however, is still expected to be around 4 per cent annually over the next decade, according to the Organization for Economic Co-operation and Development.
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Chinese wealth is significant, visible and highly concentrated, and income distribution is highly skewed. Per capita income has reached around US$8,500 at current exchange rates. Incomes are obviously much higher for many in major east coast cities, which increasingly look like other affluent Asian cities. My recent visit to imposing Beijing and spectacular Shanghai helped drive home China’s key current economic advantages.
- The ambition of its people – being hungry for generations is a strong motivator.
- Its massive domestic market and scale, which offers a strong platform for domestic Chinese firms to expand.
- Pragmatic and adaptable market-oriented economic reform and decision-making since the late 1970s. When policy mistakes are made, like opening some financial market segments too rapidly, it has demonstrated the ability to recover and adjust.
- Broad engagement in the international trading system.
- Bright new public and private infrastructure, including IT and telecom, fast trains, roads and highways, commercial and residential structures.
- A bold leap into the digital economy creates the potential for huge natural monopolies and oligopolies that are built at home, and which can then compete aggressively globally.
- A selectively open domestic market and blurred relationship between private business and the Chinese state, especially state enterprises. This blurring can create local advantages and barriers to entry for foreign firms, notably in sectors such as financial services.
- Mass education is still expanding, and the education of women is accelerating. Technical skills are strong, and elites that engage with foreigners in major cities are fluent in English.
Despite these advantages, China faces significant constraints to continuing growth. China remains the world’s third-largest country by geography. A population of 1.4 billion people – and still rising – needs to be housed, fed, educated and economically engaged. Hundreds of millions of Chinese still live in rural areas, and raising their living standards further is a massive challenge.
Many of these challenges are exacerbated by the one-party state, which now includes a presidency with no end date. In addition to its documented abuses of human rights and weak (though improving) rule of law, many China watchers debate whether advanced business innovation and further economic reform can take place amid continuing one-party rule. Extensive political interventions in the economy, or inconsistent and arbitrary judgments in its court system, could frustrate private initiative.
China’s rapid economic growth and expanding geopolitical influence make it a rising regional and international power in trade, diplomatic and military issues. While its rhetoric has frequently been bold, it is unclear how the one-party Chinese government will manage being a dominant regional power and a central global player.
China is the world’s biggest emitter of greenhouse gases (GHGs), and its emissions are not projected to peak until the early 2030s. Water and soil degradation are also significant environmental concerns. China is making significant investments in green technology and environmental practices, but the path ahead to a cleaner, more sustainable physical environment will be long. Reducing GHG emissions is a critical corollary of improving air quality. Burning coal for electricity generation, combined with the crush of vehicles, means terrible air quality in Chinese cities. Respiratory and other health problems are widespread, which shortens life expectancy.
As it takes on these challenges, we expect China to remain on a solid, if slowing, growth path. For many millions of Chinese, real incomes and wealth will continue to rise.
For the rest of the world, China’s continuing success is not a zero-sum game. It will mean massive new opportunities – as well as further competition – for the rest of the global economy in the years and decades ahead. U.S. tariffs will not change that reality.