President at Eurasia Group / Ian Bremmer
The stock market plunge continues in China this week. Prepare to hear a lot more about China’s slowdown in the days, weeks and months ahead. But don’t be fooled—China’s rise continues in spite of recent stumbles. These five stats explain why we’re still headed for a “China Decade,” when the emerging giant’s international influence crosses a crucial threshold. This piece has been repurposed from my column in TIME.
It’s been a rough summer for Chinese President Xi Jinping, and most of the world has been caught off-guard by China’s wobbling. By July 2015, exports had already dropped 8 percent compared to the same time last year. Since June, the Shanghai stock market has plummeted almost 40 percent. On July 27, the stock market fell 8.5 percent, its greatest single-day drop in history. Or it was until yesterday, when it again fell 8.5 percent; the slide continued today as the Shanghai dove another 7.6 percent. To put that in perspective, “Black Tuesday,” which kicked off the Great Depression in 1929, saw the Dow plunge 12 percent. In the span of a month, China has experienced three events approaching “Black Tuesday” levels. Two weeks ago, China tried to kick-start its economy by devaluing the renminbi by 4.4 percent—but the move was so surprising that it actually fueled more uncertainty than it quelled. Fortunately for China, its stock market worries are not like America’s or Europe’s. Just one in 30 Chinese own stocks directly, limiting the ability to use stock market losses as a barometer for the health of the broader economy. And the market rose 150 percent before this precipitous fall.
Despite the attention-grabbing headlines, Beijing can take solace in the fact that its economy is still growing. 2014 saw China’s GDP overtake America’s when calculated by purchasing-power-parity, which equalizes the relative costs of different currencies. Using this metric, China’s economy accounted for 16.32 percent of world economic output compared to America’s 16.14 percent. As of August 18, Moody’s still projects China to grow 6.8 percent this year.
But more impressive than the size of China’s economy is how quickly it’s become a pillar of world trade. Back in 2000, Chinese imports and exports accounted for 3 percent of all global goods traded—by 2014, that figure had jumped to more than 10 percent. In 2006, the US was a larger trade partner than China for 127 countries. China was the larger partner for just 70. Today, 124 countries trade more with China than with the United States. Those figures won’t change overnight, no matter how badly the Shanghai Index is doing.
The coming “China Decade” owes as much to the strategic planning of China’s leadership as to the sheer size of its economy. Beijing has stockpiled nearly $4 trillion in foreign exchange reserves—tops in the world—which will prove useful, come what may.
Beijing is also busy tightening its political grip; Xi is currently presiding over an anti-corruption push that has already seen 414,000 officials disciplined and another 200,000 indicted. The corruption crackdown bolsters his party’s credibility in the eyes of the Chinese people while also sidelining opponents of his reform agenda, at one fell swoop. Given the lack of public backlash, Xi is well on his way to consolidating power. That bodes well for a China that needs strong leadership to navigate the choppy waters ahead.
Spreading the Wealth
China has also spent the last twenty boom years strategically investing in countries around the world. Chinese investments in Africa jumped from $7 billion in 2008 to $26 billion in 2013—a time when skittish Western investors were fleeing the continent in droves. China stayed behind to help fund desperately needed infrastructure projects; it is doing the same now in Latin America, where it has pledged $250 billion over the next decade. This isn’t charity—China looks to secure long-term supplies of commodities it needs to continue to fuel its economy, creates jobs for Chinese workers, and helps China open new markets to sell its goods. Combined with other strategic initiatives like the establishment of the Asian Infrastructure and Investment Bank (AIIB) and the “One Belt, One Road” policy, it’s clear that the Chinese government has a comprehensive global strategy.
The truth of the matter is that, while Beijing can manage the pressure of a slowing economy and extreme stock market volatility in the short-term, the long-term challenges it faces are formidable. The most pressing? Demographics. By 2050, it’s estimated that China’s work force will have shrunk by 17 percent. It’s simple math—in 1980, the median age in China was 22.1 years; in 2013 it was 35.4, and by 2050 it will rise to 46.3. It’s impossible for Beijing to keep up its torrid manufacturing pace when faced with these types of numbers.
China’s economy is still strong, but its ascendancy can’t last forever.
Another serious challenge is pollution. Less than 1 percent of China’s 500 cities meet WHO air quality standards, and over 1/3 of all water in the country is deemed “unfit for human contact.” These numbers aren’t new; what’s new is a growing Chinese middle-class that demands Beijing finally address these problems. Given that there are already 650 million Chinese people who’ve found their way online and can now easily voice their concerns and frustrations, Beijing better deliver if it wants to keep the peace, and its regime, intact.
The short version of all this? China’s economy is still strong, but its ascendancy can’t last forever. As we’ve seen this summer, China has grown important enough that its domestic vulnerabilities now roil the world at large. Going forward, the world will be shaped by both Beijing’s successes and its failures. Welcome to the China Decade.
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