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But let's hold up a moment. We're getting ahead of ourselves. Let's rewind about 50 years back to 1971.
It's the height of the Cold War. The US and Soviet Union are both staring down the gun of nuclear annihilation. Both sides are looking for any edge that might give them an advantage in the game of great power politics.
An opening presents itself with Maoist China.
Despite the rhetoric of global communism, the Soviets and Chinese relationship status is closer to "it's complicated" rather than "bffs". A few years back, in 1969, Soviet and Chinese border forces clash resulting in hundreds dead. The Soviets briefly consider nuclear retaliation. Sino-Soviet relations plummet.
Sensing the opportunity, American President Richard Nixon announces his intention to visit China the following year. What follows in 1972 is nothing short of world changing. With a single meeting, Communist China is pulled into the American bloc opposing the Soviet Union. The strategy of containment is now complete.
There is, however, a tradeoff for the Americans. Sure, there's now one more power opposing the Soviets, but there's also a cost. That cost is trade concessions. China is given access to U.S. markets.
At first, this isn't really much of an issue. China is an economic backwater. The Chinese people are still reeling from the 45 million dead to Mao's Great Leap Forward and the additional 1.5 million dead to the terror of the Cultural Revolution. In 1972, China's GDP is only $113.6 billion. For comparison, the U.S.' GDP is $1.3 trillion, 11 times larger than China's.
But twenty years later, two unexpected things happen to radically alter China's trajectory, and, by extension, the world's.
First is the unexpected collapse of the Soviet Union in 1991. After a tense geopolitical standoff that lasts almost 50 years, the U.S. suddenly finds itself as humanity's undisputed hegemon. There is no nation on Earth that comes close to rivaling America's overwhelming, political, economic, and military might. It's widely expected the U.S. will use this opportunity to reevaluate military commitments and demand trade concessions. But the Americans do the opposite: they double down.
To combat the Soviet threat, the U.S. constructed a series of military and economic alliances. Fundamental to the U.S.' economic strategy is the principle of free trade. Indeed, American elites believe free trade will make all countries richer, create a global middle class, and result in the spread of liberal democracy worldwide. War will be forever abolished since elites also believe that democracies never go to war with one another and are inherently more peaceful. It is the end of history.
As the Americans are using free trade to open up global markets, a second momentous change occurs: China's economy begins to liberalize. Under the rule of Chairman Deng Xiaoping in the 1980s, the Chinese Communist Party (CCP) begins a series of economic reforms. While operating with the permission of the CCP, private enterprise flourishes. By the mid-1990s, China's economy begins to boom.
Operating within the geopolitical context of the 1990s, China is given the perfect economic opportunity. But there's another element to China's rise that's often overlooked: demographics.
In the 1990s, China is the world's most populous country. More importantly, China manages to hit the demographic jackpot - and it's completely by accident. After peaking at 6.39 births per woman in 1965, China's birthrates begin to plummet due to suffering inflicted by the Great Leap Forward and Cultural Revolution. Fearing overpopulation and continued famines, the CCP implements the One Child Policy in 1980. By 1995, birthrates are 1.66.
The consequence of China's rapidly declining birthrates is paradoxical. Population trends aren't felt overnight. It takes 40 to 60 years for rising or declining birthrates to fully impact a country's demographics. When global trade opens up in the 1990s, China is still riding the highs of its own baby boom following World War II. As a result, Chinese labor is cheap, massive, and growing. In 1990, China's possess a workforce of 641 million. That number jumps to 735 million in 2000. China alone accounts for around 27% of humanity's entire workforce in the 1990s.
But China's massive labor pool isn't its only edge. Remember those declining birthrates? Fewer kids means fewer dependents. That's good for an economy as it means more productive workers and lower social welfare spending. In 1980, China's ratio of workers to dependents is 68.3%. In 1990s, it's 52%. By 2000, China's dependency ratio drops to 46.2%. Concurrently, China's GDP skyrockets from $191 billion in 1980 to $1.2 trillion in 2000. Yet this isn't the end of the Chinese growth miracle. It's just getting started.
In 2001, the World Trade Organization (WTO) admits China as a member. With trade barriers removed, particularly to the U.S., Chinese exports begin to dominate global commerce. The resulting shift in global political economy is startling.
In 2000, China accounts for 3.7% of global trade. By 2018, China accounts for 12.1% of all trade. Furthermore, while 80% of countries trade more with the U.S. than with China in 2000, by 2018 China is the main trade partner of 67% countries. China is the center of global trade.
At the height of America's emergence as a superpower in 1948, America accounts for 30.5% of global manufacturing. In 2019, China accounts for 28.7% of global manufacturing compared to the U.S.' 16.8%. Furthermore, China's chemical industry captures 40% of all global sales. China is the world's factory.
China's manufacturing and trade power is quickly leveraged to generate economic growth. From 2000 to 2020 China's economy grows 12 times from $1.2 trillion to $14.7 trillion. Its GDP ranking jumps from the sixth largest economy to the second largest economy behind the U.S. Many experts predict that China's economy will be the world's largest by 2030.
Despite the unprecedented and miraculous growth of China's economy, there's a problem. China is still poor. Yes, there's incredible wealth in China, especially along the coast, but it's not evenly distributed. China's GDP per capita is only $10,500. For comparison, Costa Rica's standard of living is 15% higher than China's.
The CCP's fundamental challenge is it must ensure continual economic growth. The CCP's legitimacy is rooted in its ability to increase standards of living and establish China as the world's superpower. Only continual economic growth can make this dream a reality. But time is not on the CCP's side.
Remember China's birthrates and dependency ratio? Well, the very thing that helped power China's rise from 1990 to 2020 is quickly becoming an anchor. Because of China's one child policy, there is no next generation. China is home to one of the world's fastest aging populations.
By 2030, it's estimated over 25% of China's population will be older than 60. But these estimates are relying heavily upon the CCP's "official" data. And "official" CCP data is about as reliable as predictions of the Detroit Lions winning the Super Bowl.
Shortly after reports of Chinese births being at record lows, the CCP mysteriously "discovers" new data saying it underestimated China's population. Simultaneously, COVID-19 deaths and infections statistics remain suspiciously low and unaltered for months. It's obvious China is trying awfully hard to disguise its actual population numbers.
There are serious cracks in the CCP's narrative regarding "official" population data. China maintains a strict population registry called the hukou. Every person in every family must register their status with the state to obtain access to education, healthcare, and other government benefits. The hukou registry data conflicts with Beijing's official population narrative.
Just consider the data surrounding first-graders. While Beijing reports 104 million first graders back in 2009, only 84 million are registered in the hukou for 2010. This inconsistency is leading some to assert China's population will peak in 2022. Others believe China's population is actually 115 million smaller than reported. Some argue China's population may already be contracting. Even the Chinese Academy of Science warns that China's population could halve by the end of the century.
Regardless what China's true population is, its rapidly aging populace is devastating to China's growth model. If its labor pool is shrinking, then that means labor is getting more expensive. In fact, China is no longer the world's source of low-cost labor. Labor is cheaper in Mexico than it is in China. And without a future generation of workers, China's future is looking less like Wakanda and more like Children of Men.China will get old before it gets rich.
China's situation is very much like Germany's. With a declining consumer base, the only way the Chinese economy can grow is by exporting. But unlike the Germans, China's economic model revolves around being the lowest-cost producer. China must automate if it wants to remain competitive on the world market.
There's one problem with this strategy. Automation is expensive. Replacing China's massive labor force with machines is a multi-decade effort that represents the greatest investment project in human history.
Under normal circumstances, China might be able to re-direct investment capital into automation. But China's been using investment spending to supercharge growth for decades. That leaves little left-over to power investment into automation. Furthermore, China's greying population will cause investment capital to be increasingly diverted toward social welfare spending and elderly care. To make matters worse, the emergence of the Evergrande bankruptcy suggests that all's not well with China's financial system. Something feels off. And signs seem to point that China's sputtering financial system is poised to make 2008 look like a walk in the park.
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