China's Next Great Challenge: Scarcity

China will soon surpass the United States as the world's largest economy, but this is the least interesting thing about it.
Feng Li/Reuters

The following is excerpted from the book In Line Behind a Billion People: How Scarcity Will Define China's Ascent in the Next Decade.

One Beijing morning in early November 2012, seven men in dark suits strode onto the stage of the Great Hall of the People. China’s newly elected Chinese Communist Party (CCP) Chairman Xi Jinping stood at the center of the ensemble, flanked on each side by three members of the CCP Politburo Standing Committee. It was the outside world’s first chance to take stock of the committee that will run China for the next decade—one that will mark many milestones. Under Xi’s watch, which is scheduled to last until 2022, China is expected to overtake the United States as the world’s largest economy. That moment when it arrives will likely lead many in the West to pontificate about the reshuffling of the global pecking order. Inevitably, they will breathlessly proclaim that having held the world’s “gold medal” for largest GDP since around the turn of the 20th century, the United States, will have to yield to China, the new “number one.”

That Chinese economic growth has been a success is beyond dispute. Since 2005, China has sprinted past Germany and Japan to become the world’s second-largest economy. By the end of 2012, with a GDP preliminarily estimated at $8.3 trillion, the gap between China and number-three Japan in terms of economic output is as large as the entire French economy. Little wonder that “an American 20th century yielding to a Chinese 21st century” has become a popular refrain, as a flurry of commentators and authors argue that the world should prepare for the possibility that it will once again be centered on the Middle Kingdom.

The day that China assumes the mantle of world’s largest economy will invite both envy and trepidation, and global perceptions could shift rapidly. The approach of this psychological threshold has already led some quarters of the global cognoscenti to declare the irreversible decline of the American idea as the enduring viability of the China model supplants it. Amid the anticipated “declinist” commentary in the United States and elsewhere, however, too few will pause to ask “so what?” Should China’s continued rise really inspire such alternating anxiety and cheerleading? Yes, China is almost guaranteed to become the world’s leading economic power, but this achievement will paradoxically say less about China’s growing strength and influence than conventional wisdom assumes.

That China will eclipse the United States in absolute GDP terms shouldn’t be particularly surprising—it is, after all, home to four times the population of the United States. But perhaps the speed with which China has caught up with the rest of the world, a pace that not even China’s own leaders anticipated, will be surprising to many. Yet the speed of growth will no longer be the dominant preoccupation of the country. The perennial “bulls and bears” debate on China’s prospects, exclusively focused on the state’s struggle to maintain rapid growth, overlooks a more fundamental truth.

Amid the anticipated “declinist” commentary in the United States and elsewhere, however, too few will pause to ask “so what?” Should China’s continued rise really inspire such alternating anxiety and cheerleading?

Either a continuation or an interruption of growth is unlikely to alter the country’s sociopolitical core after 30 years of breakneck development. China has, in fact, already weathered several jarring economic cycles since its transition to a market economy, though the country’s statistical system obscured the direct effects at the time. If the country were on the verge of economic and political collapse the moment real GDP growth dipped under 8 percent, it would have already collapsed several times by now. In fact, the Chinese economy is more resilient to the business cycle than is typically acknowledged.

Yet in spite of this, the country’s economic and political rise will constrain as much as empower it over the next decade. It will be an era in which the country’s ability to sustain economic growth becomes less of a concern. What instead will define China is also what has always defined it: scarcity.

The crucial and intersecting challenges of scarcities, both emerging and intensifying, will consume China’s custodians over the next decade. Scarcity is the keen lens through which the economic, social, and political constraints that accompany China’s rise can be seen most clearly. Economic dimensions of scarcity are perhaps the most obvious and are subject to frequent discussion. China’s supplies of natural resources and labor, the critical inputs that have sustained its stellar growth, are increasingly stressed. Resource scarcity is about to force difficult changes in China’s growth model, whether the country is prepared or not. Food, too, faces renewed supply constraints as burgeoning Chinese consumption adds a new set of pressures on domestic production. But as previous decades have witnessed, what happens in China can rarely be contained within its borders. These challenges of scarcity will have far-reaching implications for global supplies, global prices, and global politics.

Although they undeservedly receive much less attention from observers outside China, social dimensions of scarcity will pose as much if not more of a constraint on the country as economic scarcity over the next decade. Whether it is healthcare, education, or the social safety net, public goods in China are in short supply even considering the country’s level of economic development. Social dimensions of scarcity, more than simple matters of supply and demand, are also symptoms of intensifying Chinese inequality. Over the three decades in which the Chinese government shifted its emphasis from “class struggle” to economic development, the deepening of inequality has coincided with, and in some ways spurred, the emergence of new social classes in China. New categories such as “elite,” the “middle class,” and the “migrant class” are far cries from the simple bifurcation of proletariat and capitalist during the halcyon days of communism. Most members of all three groups live materially better lives today than at the end of the planned economy in 1978. But unequal distribution of both the burden of paying for public goods and the access to them often overshadows an aggregate improvement in general welfare.

Damien Ma and William Adams

Damien Ma is a fellow at The Paulson Institute in Chicago. William Adams is a research associate at the University of Pittsburgh's Asian Studies Center and a senior international economist for a global financial institution headquartered in Pittsburgh.

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