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"Split Down the Middle": Why China Won't Dominate the 21st Century

Posted Apr 29, 2009 08:30am EDT by Aaron Task in Investing, Newsmakers
Related: FXI, EPP, PAF, GCH, PGJ, EWJ, EEM
China's astronomical growth is one of the great economic and geopolitical stories of the modern era. But it's also coming to an end, says George Friedman, founder of STRATFOR and author of The Next 100 Years.

"China has had extraordinary growth for 30 years - the probability it will do it for 60 years is statistical negligible," he says.

Friedman predicts China will fragment in the coming century and be overshadowed (again) by Japan as the region's dominant power.

The critical issue - something that's lost on most Westerners who visit or invest in the country, he says - is that China is "split right down the middle" between its booming, modern Eastern seaboard and extremely poor rural heartland.

"Beijing is trying to balance - in a very ancient way - between one region that's lost its bearings in China vs. the rest of China that's bitterly poor and extremely angry," Friedman says. "It's difficult to see how a coastal region that has more in common with Los Angeles is going to be held together with 1.1 billion [people] living barely above poverty."

The ruling Communist Party may be able to suppress rebellion and maintain its power, he says. But it won't be able to prevent these internal divisions or from other nations, including Western powers and Japan, from making inroads into China.

This will have profound implications for investors who are betting big on China, as well as for U.S. interests in the region, as we discuss in more detail in a forthcoming segment. 

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