There are a number of reasons why. Partly there is a natural rhythm to economic catch-up for countries that begin quite poor (as China did, and Japan before it). An initial generation or two may be willing to work long hours for relatively modest pay by international standards, because even those levels of remuneration seem fantastically high to workers whose parents lived at subsistence levels off the land. This means that the fruits of economic growth can be used largely for investment, because even modest enhancements in consumption feel like riches beyond imagining. But at some point, as wealth increases, the expectations of younger citizens change and they demand more resources being devoted to consumption and more of their time being spent in leisure. Also, rapid economic development leads to developmental dead-ends and errors, with infrastructure built that is never used, borrowing mistakes that create debt overhangs, and even sometimes corruption and criminal gangs as new wealth creates opportunities.
Another consequence of economic development will become especially acute for China: a reduced birth rate. As well as the normal pattern of more educated and wealthier women achieving more reproduction control, China had more specific measures to attempt to limit its birth rate in its rapid population expansion phase, including the notorious “one child policy”. Its population has already peaked at about 1.4 billion, is now falling and projected to fall to around 1.2 billion over the next thirty years, and then crash to 600 million by 2100.
The US population, by contrast, is expected to continue to grow, from about 340 million now to over 380 million in 30 years’ time, dropping only slightly to about 370 million by 2100. To make up for that difference in population growth, China’s GDP per capita would need to grow nearly 1 per cent per annum faster than the US’s for the next 30 years and nearly 1.5 percent faster than the US’ from then until 2100.
This may be possible in the short term. Although China’s international trade position suffered significantly in the aftermath of Covid (with the gap between its GDP and the US’ widening from about $5 trillion in 2021 to around $10 trillion in 2023), it appears to be benefitting from some fairly shrewd economic repositioning with respect to the Russo-Ukraine War. Projections last year from economic forecasters CEBR had China managing about 1 percent faster GDP per capita growth than the US for some time, allowing it to briefly overtake the US economy by the late 2030s, though the US re-overtakes within a couple of decades as the demographic effects kick in.
Those projections, however, assume US GDP per capita only grows at its recent rate of about 1 percent per annum. That could be too pessimistic, given the effects on productivity growth we are already seeing from AI and the stream of other new technologies (eg green tech, driverless cars, lab-grown meat, cancer vaccines) that appear on the cusp of widespread adoption. If there is only slightly faster US growth, China never overtakes.
As well as the economic implications, these trends may also have geopolitical consequences. We may be reaching the point of China’s nearest approach to US economic power, and the distance may grow quite rapidly again once that point is reached. That may mean for example that whereas there had until recently been a working assumption that China’s growing military might would mean its eventual absorption of Taiwan was only a matter of time, the window of opportunity may rapidly be closing. If China does not take Taiwan soon, its power relative to the US’ may start to decline so rapidly that seizing Taiwan quickly becomes implausible. Xi Jinping may soon face a now-or-never moment.
