China As Number One

Fri, 01/07/2011 - 13:29 EDT - Mathew Yglesias

Back in the requests thread, someone asked for “[m]ore about demography. What are the overall trends? Have Chinese-style anti-natalist policies been vindicated by Chinese growth? Have European pro-natalist policies worked, and at what cost?”
This is an under-contemplated subject in international comparisons. If you want to know about what living standards a country is able to achieve, you want to talk about GDP per capita. That’s output over people. But if you want to know about how mighty a country is on the world stage, you just want to talk about GDP. And if you want to talk about how efficiently a country’s economy is working, you probably want to talk about GDP divided by working age population. Daniel Gros cites GDP/WAP to say that Japan’s economic decline is largely an illusion. But I think this illusion is, in turn, a bit of an illusion. The bottom line about Japan is that if your working age share of the population declines, this drags average living standards down. What we’re seeing in China recently is in part huge efficiency gains, but in part a big increase in the working age share of the population driven in part by anti-natalist policies. Declining birth rates offer a one-time demographic dividend followed by rapid population aging.

As Kevin Drum notes, this means China will run into a serious demographic headwind pretty soon:
By 2030 they’ll have a greater proportion of the elderly than the United States. This is one reason why I’m skeptical of alarmism about China’s imminent takeover of the world. I don’t doubt that China will continue to grow and flex its muscles, but in the long term they have a demographic time bomb to deal with that’s worse than ours, and they’ll have to tackle it as a considerably less wealthy country than us. It doesn’t mean they’re doomed, but it does mean that their path to world domination has a few roadblocks in its way.
Very true, but what I think this misses is that China surpassing the United States in aggregate GDP terms is likely to happen much sooner than people realize. The Economist says it’s likely to occur during Jeb Bush’s first term around 2019 or so. You’ll then have a situation in which the mightiest economy on earth is also quite poor (think Mexico) and facing a rapidly darkening future economic outlook. I think it’ll make the 2020s and 2030s a pretty hairy decade in East Asia.

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China As Number One

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