Myth of ‘Peak China’ is Overexaggerated and Misplaced Idea

By Andrew KP Leung (International and Independent China Strategist. Chairman and CEO, Andrew Leung International Consultants and Investments Limited).

There is a popular Western perception that China’s continuous rise is no longer “unstoppable”, due to markedly slower growth rates, rapidly aging demographics, semiconductor bottlenecks, allegedly more-constrained innovative capacity, feeble productivity increases, and much more hostile external geopolitics.

The Economist of May 11 asks, “Is Chinese power about to peak?”, highlighting Goldman Sachs’ much lowered expectation for China’s economy overtaking the United States’ by 2035 and the gloomier forecast by Capital Economics, a research firm, that China may never be able to overtake the US economy, instead peaking at 90 percent of America’s size by 2035. As China has four times the population of the US, this pessimism presupposes that China’s per capita productivity will never exceed one-quarter of America’s.

The Economist flags up, without agreeing, Hal Brands’ and Michael Beckley’s alarmist warning that a “Peak China” “facing decay” may well go to war to unify Taiwan preemptively before it’s too late, regardless of three white papers reaffirming Beijing’s preference for peaceful unification.

Drama aside, these “Peak China” musings are wide of the mark.

It’s only natural that much-larger and more-mature economies beget more moderate growth rates. Just look at the advanced Western economies, including the US’.

After decades of breakneck, “unstable, unbalanced, uncoordinated and unsustainable” GDP growth, China has instead been pursuing higher-quality, socially equitable and ecologically sustainable growth.

With an imperative for “common prosperity”, China’s people-based governance is geared to realizing the well-being of the 99 percent, instead of the 1 percent elite as in some advanced countries.

While over 800 million Chinese people have been lifted out of abject poverty, there are 37.9 million Americans trapped in poverty, according to the US Census Bureau. Many are plagued by urban homelessness, unaffordable healthcare, drug abuse, and a high incarceration rate.

The US Council on Foreign Relations reported that in 2021, the top 10 percent of Americans held nearly 70 percent of US wealth, up from about 61 percent at the end of 1989, with the bottom 50 percent owning about 2.5 percent of the nation’s wealth.

Worsening demographics represent a real challenge. However, about one-third of the 150 million Chinese people aged 60 to 69 continue to work, as China’s life expectancy has vastly improved.

China’s mandatory retirement age for men is 60, 55 for female office workers and 50 for female blue-collar workers. Relaxing the retirement age is already in the cards, as are greater financial incentives, childcare facilities, and other child-raising and educational benefits.

Instead of labor intensity, China’s productivity is increasingly being driven by factory robotics, extensive farming mechanization, ubiquitous digitization, and national high-speed-rail connectivity. Becoming commonplace are drone delivery systems and staffless hotels, restaurants, stores and supermarkets relying on digital connectivity, automation and robotics.

As for China’s innovative capacity, the Australian Strategic Policy Institute (ASPI) report of March 1 finds that China is leading in 37 of the 44 critical technologies evaluated, often producing more than five times as much high-impact research as its closest competitor, the US.

The ASPI study is based on an analysis of the top 10 percent of the most-cited works between 2018 and 2022 — a total of 2.2 million papers.

Among the categories of critical technologies, China dominates in all the subsectors in advanced materials and manufacturing; energy and environment; and photonic sensing, timing and navigation; with a substantial lead in all other categories, comprising artificial intelligence, computing and communications; quantum computing, cryptography, communications and sensors; biotechnology, gene technology and vaccines; and defense, space, robotics and transportation.

All these technologies are at the heart of the Fourth Industrial Revolution and Fifth Industrial Revolution, set to redefine how people live, how businesses are conducted, and how national powers are measured in the 21st century.

High-end nano-semiconductor chips excepted, China’s technological dominance is perhaps not surprising. Since the mid-2000s, China has consistently been producing more STEM (science, technology, engineering, and math) PhDs than the US. By 2025, Chinese universities will be producing more than 77,000 STEM PhDs per year compared with approximately 40,000 in the US. Excluding international students, Chinese STEM PhD graduates will outnumber their US counterparts more than 3-1, according to Georgetown University’s Center for Security and Emerging Technology.

In face of US indiscriminate tariffs and denial of technological access, China has proved its economic resilience as the world’s largest trader and manufacturer, deeply embedded in global supply and value chains, including critical rare earths. It’s instructive that US-led “de-coupling” has now changed to “de-risking”.

In his provocative book The Future is Asian, Parag Khanna argues that while the 19th century featured global Europeanization and the 20th century Americanization, the 21st century is for Asianization, a multicivilizational order spanning China, Indonesia, Japan, Türkiye, Saudi Arabia, Russia, to Australia —linking 5 billion people through trade, finance, infrastructure, and diplomatic networks, representing 40 percent of global GDP.

The Regional Comprehensive Economic Partnership (RCEP), comprising the 10 Association of Southeast Asian Nations members and their main trading partners — China, Japan, South Korea, Australia and New Zealand — is now the world’s largest and most dynamic trading bloc, representing a third of the world’s population, a third of the world’s economy, and a vast number of the world’s exploding middle-class consumers. As the world’s most comprehensive trader and manufacturer, China is at the economic throbbing heart of the RCEP.

Weaponizing the dollar to impose sanctions across the globe has now boomeranged, as expounded in Agathe Demarais’ Backfire: How Sanctions Reshape the World Against U.S. Interests.

There is now a strong “de-dollarization” undercurrent among various developing country groupings such as BRICS (Brazil, Russia, India, China, South Africa) and the Shanghai Cooperation Organization, not to mention China’s rapidly developing digital yuan as an alternative sovereign currency for international trade.

By 2035, the developing world will account for around 60 percent of the global economy, based on purchasing power parity, according to the Conference Board Global Economic Outlook. Most developing nations have China as their largest trading partner, and many are moving into its orbit.

Following the end of the prolonged COVID-19 pandemic, foreign businesses and investors across the globe are beginning to make a beeline for China, including corporate leaders like Elon Musk and Bill Gates.

China is actively preparing for domestic reforms, having applied to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, mandating higher international standards. Let’s hope these long-wished-for reforms are not derailed by bigotry barring China’s admission.

Perhaps where the so-called “Peak China” mantra seems most wrong-footed is its assumption that China wants to surpass and supplant the US as world hegemon. President Xi Jinping has repeatedly stressed that striving to be a “strong, democratic, civilized, harmonious, and modern socialist country”, the second-centenary goal of the Chinese Dream, doesn’t translate into seeking world hegemony.

Initial Western suspicion notwithstanding, China’s Global Security Initiative seeks to promote dialogue over confrontation, partnership over ganging-up alliances, win-win coexistence over winner-takes-all zero-sum conflict. Its Global Development Initiative is intended to remedy the developing world’s lack of infrastructural connectivity, bringing better lives to their peoples, fulfilling the United Nations Sustainable Development Goals. Both initiatives are designed to redress the root causes restraining the development of a more-equitable, peaceful, and prosperous world.

In any case, regardless of misplaced ideas of “Peak China”, there is little doubt that China will continue to keep a cool head and press forward with realizing the Chinese Dream in a better world.

 Andrew KP Leung – Independent international strategist of China; he previously served as director general of social welfare and Hong Kong’s official representative for the United Kingdom, Eastern Europe, Russia, Norway, and Switzerland.

(The opinions expressed in this article are solely those of the author and do not necessarily reflect the views of World Geostrategic Insights)

The article was  first published in China Daily