The Buzz

Why Does China Downplay Its Economic Might?

According to the summary of a forthcoming report by the World Bank’s International Comparison Program, China’s gross domestic product (GDP) will overtake America’s in terms of purchasing power parity this year—five years earlier than had been projected.  The announcement has predictably renewed three lines of discussion, the first of which runs counter to the other two:

·      America’s relative decline is accelerating.  There should no longer be any doubt that this century belongs to Asia, and especially to China.

·      It is more accurate to measure aggregate economic size at market exchange rates.

·      While GDP tends to capture the headlines, it is only one component of economic power.  Considering metrics such as per-capita GDP, the centrality of the dollar in global financial markets, and the share of the world’s most innovative companies, America’s economy will remain stronger than China’s for decades to come.

The most interesting aspect of the World Bank’s announcement, however, has been China’s reaction.  The Financial Times reports that “China fought for a year to undermine new data showing it is poised to usurp the U.S. as the world’s biggest economy in 2014.”  While perhaps more pronounced, this behavior is in keeping with China’s reaction to previous economic milestones.

In January 2010, for example, when data confirmed that China had eclipsed Germany the previous year as the world’s largest exporter, a researcher with the State Council’s Development Research Center (DRC) observed that “in terms of the structure of exports, technological innovation, and industry competitiveness, China is far from being eligible for the title of ‘trade power’.”

In July 2010, when the International Energy Agency calculated that China had overtaken the U.S. as the world’s largest energy consumer, a spokesman for China’s National Energy Administration countered that “[b]y our calculation, the U.S. was still the world's largest energy user in 2009.”

Later that year, when data revealed that China’s second-quarter GDP was slightly larger than Japan’s, the China Daily argued that “a large GDP figure, impressive as it is, bears little importance in practical terms.”  It urged China’s leaders not to “be intoxicated by big numbers.”  

In late 2012 the U.S. National Intelligence Council reported in Global Trends 2030 that China’s economy would likely surpass America’s shortly before 2030—a conclusion that received widespread media coverage across the world.  According to the report authors, however, “Chinese interlocutors stressed that it would take decades for China to catch up to the U.S.: China will not be the United States’s ‘peer competitor’ in 2030.”

In February 2013, when the U.S. Commerce Department calculated that China had overtaken the U.S. as the world’s largest trading country, the Chinese Commerce Ministry claimed that China’s combined imports and exports were $15.64 billion less than America’s in 2012 (indicative of how intent the Ministry was on showing that the U.S. was still the world’s largest trading country, this differential is only 0.4% of what China claimed that its trade volume was that year).

Given the growing confidence of the Chinese people in their country’s prospects—embodied in Xi Jinping’s desire to achieve “the great rejuvenation of the Chinese nation”—why does China consistently minimize the economic milestones that it achieves?  For those who discern deception rather than prudence in Deng Xiaoping’s famous dictum “tao guang yang hui”—occasionally rendered as “conceal our ambitions and hide our claws”—the answer is clear: to minimize suspicion of and resistance to its rise, China deliberately downplays its economic heft and the pace at which it is growing, on the one hand, and exaggerates its internal challenges and the toll that they are exacting, on the other.

But one need not be naïve to appreciate the enormity of those challenges, including:

·      Handling the influx of 250 million people who are projected to move into China’s cities by 2025;

·      Sustaining productivity given that the ratio between China’s working-age and elderly populations, 15:100 in 2010, is set to reach 36:100 by 2035;

·      Reducing the costs of environmental degradation and resource depletion, which, according to a joint report by the World Bank and the Chinese DRC, “are estimated to approach 10 percent of [China’s] GDP”;