The Exchange

China Ain’t All That: The U.S. Is Still Tops

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If China is going to muscle aside the United States—as many global citizens apparently believe—it’s going to have to generate wealth at a pace that would be astounding even for China.

A recent Pew Research Center poll has gotten a lot of attention because a majority of people in many nations—and even 47% of Americans—believe China has either eclipsed the U.S as a world power, or soon will.

The facts suggest that is ridiculous. China’s per-capita GDP is just $9,300, according to the CIA World Factbook. That ranks 123rd in the world. U.S. GDP per capita is $51,000, which ranks 14th. The only countries richer than the U.S. tend to be small, homogenous places such as Qatar, Luxembourg and Singapore.

No competition

For all its manufacturing might, China still has a huge population of 1.3 billion that includes hordes living in poverty or subsistence conditions. That saps resources and distorts economic policies at least as much as lobbying interests and me-first politics do in the United States. In the World Economic Forum’s annual competitiveness rankings, China ranks 29th, many spots behind the U.S., which ranks seventh.

Military might derives directly from economic wealth, which is why the U.S. military vastly outclasses that of any other nation. China spends about $166 billion a year on national security, or 2% of its GDP, according to the Stockholm International Peace Research Institute. That’s significant, but it’s only about one-fourth the U.S. defense budget of about $650 billion per year, or 4.4% of GDP.

China does have nuclear weapons, intercontinental missiles, modern submarines and other trappings of a superpower, yet it lacks the stealth technology, sophisticated command and control systems, thorough professionalism and other assets that make the U.S. military a standout. In a military confrontation, China could bloody U.S. forces, but it couldn't prevail.

China undoubtedly has a lot going for it, since it’s growing rapidly and in many ways executing smart national policies meant to cement its stature as a world power. There’s also some evidence the power and prestige of the U.S. is waning. The U.S., though, would have to fall quite a long way—and China rise just as far—before the Middle Kingdom could ever displace America as an economic and geopolitical power.

The WEF classifies China as a Stage 2 nation, which means it has become adept at the efficient production of commodities. Other nations with the same designation include Indonesia, Jordan and South Africa. According to the WEF, the U.S. is a Stage 3 nation with a more productive economy that runs on innovation. China, by contrast, tends to steal trade secrets rather than developing its own new technologies, which is just one reason it remains a long way from Stage 3 status.

Slowing growth

Many people seem to assume China will continue to grow at the near-double-digit rates of the past 20 years. But that’s dubious. Growth comes more easily when nations are in the earlier stages of development. Then it becomes harder to sustain as advantages, such as low labor costs, don’t provide such an edge anymore. With economic growth slowing and worries about a big credit bubble mounting, China may be approaching such a point of diminishing returns now. In the U.S., it was big news last September when the latest WEF rankings came out showing it had slipped two places from the previous year. Less reported: China also slipped two places.

As China’s stature improves, big problems that stand in the way of its march toward superpower status become more evident. For one thing, corruption is endemic throughout the Communist Party that governs China, which wrecks business confidence and stokes public cynicism. State-run banks may be riddled with hollow loans granted on orders from party apparatchiks. And many western businesses don’t trust what passes for the rule of law in China, since it tends to favor whatever policies benefit home-grown firms. “To sustain 6% or 7% growth, China will have to go through major reforms, which in the last 10 years they haven’t done,” says Nariman Behravesh, chief economist at forecasting firm IHS Global Insight. “If anything, the current structure could become more rigid and more entrenched, with the elite gaining much and only some of it trickling down.”

Rather than China’s rise, the biggest risk to the U.S. may be self-inflicted damage. With the whole global economy in a swoon, the United States is poised once again to lead the way back toward prosperity, with a repaired financial system, breakthrough industries, stellar universities and the penchant for ever-better mousetraps. But it could squander such advantages through lousy government, a myopic electorate and plain old complacency.

It’s certainly possible that China could one day catch up to the U.S., or even overtake it. But if that happens, there will only be one real explanation: We let them.

Rick Newman’s latest book is Rebounders: How Winners Pivot From Setback To Success. Follow him on Twitter: @rickjnewman.

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