Peak China?

Walter Russell Mead, writing at the American Interest, posits “peak China,” a concept much like peak oil. According to Mead:

It may be hard to believe, but it’s been a full four years since China hosted the Olympics. At the time, Beijing 2008 appeared to herald China’s return, after a 500 year hiatus, to great power status. Commentators were falling over themselves to pronounce the inevitability of China’s rise and its implications for American influence in Asia.

But is it possible we will look back on those Olympic Games as the peak of Chinese power, rather than the beginning of its rise?

Yes. There are many reasons why, including demographics, which Mead elaborates upon. I prefer the monetary-governmental explanation.

China will have to confront a series of structural challenges if it is to continue to achieve the kind of dynamic growth that lifted the country from economic backwater to emerging great power in just three decades.

The most obvious challenge is demographics. A RAND study observed that the proportion of the Chinese population of working age peaked in 2011 and began slowing this year. The share of the elderly population is rising. Healthcare and pension costs will soar as a result. So will labor costs. Investment and savings will diminish. In short, China may face the prospect, unknown in human history, of growing old before it gets rich.

I think this is probable, mainly because the growth that China has shown has been a classic case of credit-fueled bubble inflation. (I have written about this before; search “China” on the homepage.)

Of course, my interest in this is theoretical as well as practical. On the practical side, the coming China cataclysm is going to toss the world economy into a crisis of similar proportions to Europe’s coming crackup. And the American government, without any changes, is utterly ill-equipped to deal with it, meaning that it may be the final straw. But that may just be me being a pessimist.

On the more theoretical side, I am at the very least worried that we will draw the wrong lessons from China’s coming massacre. The narrative will undoubtedly read: 1) China “adopted capitalism,” 2) China saw some growth, 3) China collapsed, and therefore 4) capitalism is to blame.

This is 180 degrees from the proper interpretation, and I hope to write more about this in the future. A state-controlled economy with capitalist-leaning reforms magnified by cheap credit absolutely does not make a free market.

But I feel like I’m a voice in the wilderness. Some still look to China as a beacon, while others, acknowledging China’s foundation made of sand, offer up the same tired Keynesian platitudes that put America $5 trillion more in debt over the last 4 years, while accomplishing nothing by way of recovery or sustainability.

Perhaps it’s time people starting acknowledging instead that money has consequences. Those consequences are wonderful when the money is sound; they are terrible when the money is ginned up by the state.

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