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Why is China No Longer a “Sleeping Giant”

Napoleon Bonaparte once pointed at China and said: “There lies a sleeping giant. Let him sleep! For when he wakes, he will shake the world.“.

China is a giant that has awaken

China is a giant that has awaken

When you think of economic powers the first countries that come to mind are: USA, the EU (European Union) as a block, India, and China. You have probably noticed that I’ve left South Africa, Brazil, Russia, and many others out of the equation. That is because I believe these countries most likely will not become global powers within the near future due to their inconsistency to deliver economic results (which is due to many reasons that range from commodity dependency to political corruption).

Looking back, the same countries seem to have held the top spot in the largest economy in the world ranking for centuries:

Year Country
1-1500 India
1500-1888 China
1888-present USA
2020-onwards China?

Although the world economic dynamics has changed dramatically in the 20th century (with the birth of the Internet), by looking at the past and analyzing current trends in the world it is reasonable to make certain predictions.

China currently has the largest population in the world, it holds the largest trade balance in goods surplus, the largest foreign reserves, and is quickly becoming one of the most important sources of foreign investment. All of these observations point at the same direction: China is well on its way to take away USA’s global power belt.

Most people would agree with that statement, however, very few could explain why.

China’s Strengths

Population

Up until 1520, India had the largest population in the world, until China took over and has been on top since then. Although population size represents a significant factor when determining a country’s global power strength, it can work against you if it is not properly controlled. And that is what happened to China, when they decided to implement the “One Child” quota throughout the country in 1979 – pushing birth rates to fall from 5.5 in the 70s down to 1.6 in 2012.

There was way too much poverty and the country was consuming alarming amounts of energy – although they continue to experience those same symptoms today. The policy was intended to alleviate social, economic, and environmental issues; however, it has caused some new problems in return. China’s population is aging, with the 25-54 age cohort representing nearly 48% of the population – in contrast with the 0-24 cohort representing only 32%. They are not replacing themselves.

Young Chinese are feeling the push and pull of family duty as they deal with aging parents. This puts a constraint in their productivity and well being.

With that, population-wise, India is forecasted to surpass China by 2030.

So, China’s population supremacy has been a two-sided sword, causing both benefits and damages to its development. But as of right now, they do possess an immense work force that willing to put in long hours, what has led China to grow its economy dramatically over the past few decades – currently second largest in the planet.

Gigantic Economy

China has a predominately goods’ – rather than services – economy. As of 2012, China had the largest trade balance in goods surplus in the world by a large margin, with Germany coming in second place – that is, when a country exports more than imports. With an increasing amount of foreign investors dumping money into Chinese companies and multinationals opening HQs in China’s largest cities, the giant of the East has proved to be a tempting place to bet your money on.

Here’s a quick overview of manifestations of global powers in the world over the centuries:

1800s-1914 1945-1990s 2000s-present
Largest Economy China until 1888, then USA USA USA (soon to be China)
Largest Trading Country UK USA China
Dominant Reserve Currency Pound Sterling Dollar Dollar and Euro

Economists forecast that China’s GDP will surpass USA’s by 2020. This is due to a changing level of play in the economic field. The effects of globalization have really benefited China, who until the 2000s had a tough time integrating its upsides with the Western world. But today, with the Internet so easily available and flights going in and out of China on an hourly basis, it has become much easier for the Chinese to offer their services to the Western economic powers.

China’s Drawbacks

Open ocean access

If you look at the global map you might notice that China does not have direct access to any ocean. Although this might seem trivial, it limits China from freely having maritime commerce, open ocean commercial fishing, and a significant navy force.

China's limited access to the ocean presents some serious economic drawbacks.

China’s limited access to the ocean presents some serious economic drawbacks.

If we look at the USA, they have direct access to the Atlantic, Pacific, and Arctic oceans. Off-shore oil drilling and goods’ exportation are only two of the many benefits the Americans experience with their geographic location. The Chinese, in the other hand, are limited to land.

This type of restriction forces the Chinese to maintain good diplomatic relationships with their land neighbors. Aside from India – which has become a strong economic partner of China over the past years leading to the so-called “Chindia” – most of the neighboring countries are economically poor, forcing China to feed the Western world with what it has to offer.

Currency convertibility

Before 2009, the Chinese government prohibited almost all export of currency or its usage in international transactions. The US Dollar – which, as of this day, still is strongly tied to the Yuan’s value – was the currency used to perform such transactions. So, with Chinese people unable to have US Dollars and the international community unable to hold the Yuan, all transactions were made through the People’s Bank of China, leading to a lot of bureaucracy.

In June of 2009, the Chinese government started a program that allowed certain places to utilize the Yuan for international transactions between certain countries, removing the hassle of converting everything to US Dollars beforehand. Nowadays, all Chinese provinces are allowed to do the same, however this type of trade is only available between certain countries: Russia, Vietnam, Sri Lanka, Thailand, and Japan.

This type of limitation ends up restricting the usage of the Yuan, which in turn ends up having little reserve currency power.

Conclusion

To determine a country’s global power we must look at more than just economic and military factors – and the ones discussed above are just a few of them. There are two types of power resources: hard power and soft power. Hard powers are factors such as the country’s economy, territory, population, military, and finance. Soft powers are things such as knowledge, technology, and culture.

China clearly has a strong economy, currently the largest population on planet Earth, a large military, and a territory the size of the USA. However, its soft powers are weak compared to the ones of developed nations. Most of the strongest universities in the world are in the USA, Japan, and Europe – China has only 3 universities in the top 100. Technological R&D follows the same pattern.

But, Thomas Friedman once said: “When I was growing up, my parents told me, ‘Finish your dinner. People in China (and India) are starving’. I tell my daughters, ‘Finish your homework. People in China (and India) are starving for your job.’.

Don’t be fooled by their limitations. China has changed a lot. But so has the economy. I hardly believe that one single country will dominate as global power from here and on. With a much “smaller” world today, a single country cannot do anything on its own. We are already seeing a shift in mentality on how things are done economically, and this new way of thinking will be easily translated onto how global governance operates, as well.

 

PA

 

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