Despite some recent hiccups, the consensus among Western elites is China's rapid economic growth will continue, and sometime between 2040-2050, its economy will surpass that of the US. Davos 2017 was called China’s coming out party, and Davos 2019 proclaimed China’s arrival on the world stage as the up-and-coming superpower.
By contrast with the West’s ruling elites, China’s elites are far less optimistic about its future.
About 50% of China’s millionaires admit to wanting to permanently leave China (if anything, the real percentage is probably higher). This isn’t just aspirational. The US, Canada, Australia and other developed economies already receive substantial investment from wealthy Chinese families, establishing footholds for potential emigration.
Further, 87% of Chinese students studying in the US for a Ph.D. said they planned to stay in America after graduation (and, it’s not clear the other 13% intend to return to China). These are some of China’s smartest people. They studied at its most elite colleges before seeking advanced degrees in the US, and even at the outset of their careers - they don’t plan to return to China.
Here are some reasons Chinese elites might be concerned about the future.
For future economic development, China will need cutting-edge scientific and academic work. Scientists generally thrive in an atmosphere of academic freedom, but China is heading in exactly the wrong direction. Its government now mandates faculty and student study of Marxist-Leninism and the thoughts of China’s leader Xi Jinping. Unsurprisingly, many of its finest future researchers are voting with their feet.
China made great strides since 1978 toward inclusive economic growth, lifting 800 million people out of poverty. However, it has some of the world’s worst income inequality, with princelings (children and relatives of its political elite) disproportionately benefiting. With China’s recent policy reversals, things don’t look like they’ll be improving.
Most development professionals believe it’s difficult to run a high income developed economy unless national institutions give citizens (rich or poor) “property rights, a reliable judicial system or access to markets.” These are institutions generally associated with democracies (for more on this, see for example Why Nations Fail, by Professors Acemoglu (MIT) and Robinson (University of Chicago)).
If democratic institutions are key to its next level of economic development, China must close a Grand Canyon-sized chasm.
The 2017 Economist Intelligence Unit Democracy Index ranked Norway 1st as the most democratic, China 139th and North Korea 167th (last) as the most authoritarian state. To put China’s position in perspective, the average Democracy Index ranking was about 25 for large (10+ million population) high income developed countries (excluding countries, e.g., Saudi Arabia, deriving income mainly from natural resources).
Recent policies have made China’s ’democracy chasm’ even wider.
China moved towards collective leadership in 1978, with more deference to market forces, and (arguably) an aspirational goal of greater government accountability. But its princeling “paramount leader” and “Chairman of Everything” Xi Jinping (General Secretary of the Communist Party of China, President of the People's Republic of China, Chairman of China’s Central Military Commission, Core Leader, etc.) has reversed these trends. He’s curtailed collective leadership, and seems intent on becoming President for Life. President for Life systems are often unstable, particularly when selecting a successor.
Xi is also leading China away from a market economy, and towards greater Communist Party control of the economy (which historically has been a bad idea).
There are further concerns that Xi’s much vaunted anti-corruption and nationalism drive is aimed at keeping his current clique in power, rather than promoting real reform. One study found that:
“ individuals with personal ties to Xi Jinping appear to be exempt from [corruption] investigation while, individuals with ties to the other six members of the Politburo Standing Committee had no special protection.”
In theory, China is cracking down on corruption and the large fortunes of government officials (often, those who aren’t Xi’s allies). But even reporting about the wealth of Xi’s family is blocked in China (since, of course, it was accumulated without corruption or nepotism).
Xi warned of the dangers of Western education and liberalism, but sent his daughter to Harvard, the epitome of a liberal Western education - useful preparation perhaps for the Xi family foothold in the West, if things go wrong in China? Xi’s extended family appears to already keep some of its wealth outside China.
Besides non-democratic institutions, China has major structural problems looming on its horizon. Due to long term demographic trends (e.g., the legacy of its one-child policy), China’s workforce is shrinking and aging. Its elderly population is expected to double by 2050, and its GDP share (spent on elderly nursing services and healthcare) is projected to rise from 7.33% to 26.24% between 2015 and 2050.
China’s economic development came at a large cost to its environment and public health. One study claimed breathing Beijing’s air is equivalent to smoking forty cigarettes/day. Increased pressure for China to clean up its polluted environment is likely, even if the price is reduced economic growth.
Other issues currently in the headlines (potential trade war with the US, increased resistance to intellectual property transfers, ethnic unrest, debt overhang, and so on) could derail further economic expansion.
Perhaps China will surmount these issues and continue with rapid growth. Or it could stagnate, for a decade or more, while grappling with these and other problems.
But also seriously consider that China’s economy could implode – as things go terribly wrong (e.g., a large scale uprising by its Uighurs, Xi’s version of a Cultural Revolution, large scale failures of its state-owned enterprises, China invades Taiwan and the situation escalates, or a messy anti-Xi coup). An unstable, economically-imploding hyper-nationalist China destabilizing the world would be nightmarish.
But, it’s a nightmare for which policy and business leaders should begin at least some contingency planning. For example, businesses doing almost 100% of their assembly in China (e.g., Apple and its IPhone) should start thinking about diversifying their supply chains.
A version of this post originally appeared on my blog at medium and is cross posted with permission.
Steven Strauss, a visiting professor at Princeton University's Woodrow Wilson School of Public and International Affairs, is a member of USA TODAY’s Board of Contributors. Follow him on Twitter @Steven_Strauss.