Minhaz Merchant China's Misfiring Engine

MINHAZ MERCHANT IS THE BIOGRAPHER OF RAJIV GANDHI AND ADITYA BIRLA AND AUTHOR OF THE NEW CLASH OF CIVILIZATIONS (RUPA, 2014). HE IS FOUNDER OF STERLING NEWSPAPERS, WHICH WAS ACQUIRED BY THE INDIAN EXPRESS GROUP

IN A PROVOCATIVE article in The Times of India (November 1, 2022), author and global investor Ruchir Sharma wrote that China faces terminal economic decline. Its GDP is estimated to grow at three per cent in 2022-23. But that’s not the only bad news for Beijing. Sharma argues that China’s long-term economic growth going forward will sag to an annual average of 2.5 per cent.

Sharma argues: “Chinese President Xi Jinping’s goal is to make China a mid-level developed country in the next decade, which implies a growth rate of around 5 per cent. But underlying trends – bad demographics, heavy debt and declining productivity growth – suggest the country’s overall growth potential is about half that rate. The implications of China growing at 2.5 per cent have yet to be fully digested anywhere, including Beijing. For one thing, assuming that the US grows at 1.5 per cent with similar rates of inflation and a stable exchange rate, China would not overtake America as the world’s largest economy until 2060, if ever.”

The good news for Beijing is that analysts sometimes get their forecasts wrong. That’s cold comfort for Xi Jinping. He knows better than anyone else that China is facing a triple whammy: an ageing workforce, a shrinking population, and unsustainable debt. Together they could prove Sharma at least half-right.

China’s economy may not overtake America’s by 2030 as many had confidently predicted. But overtake it, give or take half a decade, it probably will. What we are likely to witness over the next few years, however, is the quasi-Japanification of the Chinese economy.