Last year, China’s economy grew 3 percent, which is a stark contrast to the growth rates we’ve been used to in recent years: 7 percent, 10 percent. That 3 percent, and the resulting euphoria, indicates that the economy is struggling to grow. And this depends, among other things, on the number of inhabitants a country has. After all, the economy is nothing more than more people at work who also become more productive on an annual basis.
If you look at the growth data for the last few years, productivity growth has always been 3%, a third of the growth has come from there — the rest has been largely due to demographics: more people working.
Technology
This is now the end of the line now that the number of Chinese is decreasing and the working population is also decreasing. The reason China has been able to grow so fast for so long is that it has adopted Western technologies for next to nothing and implemented them into its own economy.
Until it reaches the tipping point we’re at now: a Western aversion to that technology transfer coupled with the fact that there’s not much left to take over. That’s how big the Chinese recovery has been. China is therefore more dependent on itself for growth and has to rely more than ever on productivity growth. And there the system takes its revenge on the centrally planned economy.
An important condition for productivity growth is that inventions are made that must also be implemented in the economy. And the free market economy lends itself better to this than a centrally directed economy.
Export
Declining population growth is not a problem confined to China’s national borders, it affects us too. In recent decades, China has “exported” deflation and systematically reduced our inflation. With this new economic reality, this may even be reversed, China may even increase our inflation.
Another consequence of lower economic growth is that uncertainty increases, that unemployment can rise with social unrest in its wake. In this case, a somewhat dictatorial regime often tends to divert attention to a common enemy, which translates the Chinese problem into a geopolitical consequence.
India
When China is past its prime, who will take over? Its ancient arch-rival, neighboring India. A large country with a growing population and a growing working population. And this with a free market economy, democratic institutions and good relations with the West. And the same cannot be said of China.