Who Will Be the Next China?
China posted astounding growth rates both before and after the Great Recession. But now its GDP growth numbers are decelerating, and the days of 10 percent growth are over. Slowing is different than ceasing to contribute, however, and China should continue to contribute more than any other country to global growth.
A slow and subtle slowdown in China is no cause for alarm. It could slow significantly more than expected and still be the single largest contributor to global economic growth. At its current growth rate, China’s economy will contribute more than $1 trillion to global GDP growth (using purchasing power parity GDP from the International Monetary Fund). Overall, the global economy should grow by around $3.5 trillion, meaning China will contribute nearly 30 percent of global growth in 2014.
According to IMF projections, China will add more than $1.7 trillion to the global economy in 2018. Meanwhile, the number two contributor, the US, will add a little more than $1 trillion. The importance of the US to the global economy is far from over. And China is expected to continue to produce around quarter of all global economic growth through the end of the decade.
Not bad for a developing country. Developing economies supplanted advanced economies more than a decade ago as the primary contributors to global economic growth, and as of last year the developing world now controls more GDP than the advanced economies. But much of this is actually China, and taking China out—or shifting China to the advanced country column—would dramatically alter the global economic picture (at least on paper). And that may be what the future holds.
Why? Chinese demographics are part of the reason for its success. With 1.3 billion people, China is the most populous country on the planet, and its economy has benefitted from a tremendous inflow of people from the countryside to cities. More migration to cities is expected, but China faces an aging population that is partially a result of its one child policy. This means a declining working age population in coming years, and an increase in the costs of caring for the elderly. Demographics evolve slowly though, giving time for the next growth engine to emerge.
Which countries and regions may, one day, replace Chinese growth? Brazil, India, Russia have not yet had their moment. India boasts the world’s youngest and second largest population. And India is contributing about 7 percent of global growth at the moment, a figure projected to grow towards 10 percent by the end of the decade. Brazil, which seems to be perpetually plagued by its reliance on commodity prices—and the corresponding boom and bust cycles, only contributes 3 to 4 percent to global growth. Russia, at 2 to 3 percent, has yet to live up to its hype. In fact, Russia, India, and Brazil supply a paltry 12 percent of growth. The RIBs have little meat on their bones.
On a larger scale, there are regions that could provide the next leg of global growth. The ASEAN-5 (Indonesia, Malaysia, Philippines, Thailand, and Vietnam) is a bloc that holds substantial promise. But even a group of this size and economic dynamism is only expected to produce 5 percent of the world’s growth for the next decade. For comparison, an improving EU is only expected to contribute 7 percent to global growth. In the next 20 years, however, the ASEAN-5 could grow to a size where its growth would have a more substantial impact.
There is also sub-Saharan Africa. Decades struggling to recover from colonial oversight and a seemingly perpetual resource curse have left Africa the last frontier for industrialization, and this could be the case for quite some time. In 1984, SSA was contributing 2 percent of global growth—the same as the ASEAN-5 and only slightly less than India. Today the region contributes 4 percent, which is more than Russia or Brazil. With its young population, a fertility rate that is well above the global norm—around five children per woman, and a population pushing one billion people, demographics favor SSA. A case can be made that there will be an African moment, but political and tribal strife impede this progress, keeping SSAs a few spots back in the growth queue. The region will need time to create the institutions necessary to support lasting economic growth. But down the road, there is the potential for it to be an economic growth engine for the globe.
At least for now, there is no “other” China on the verge of emerging as the next engine of global growth. But there may be some on the horizon. For now, the US and China are the dominant forces of global growth, combining for more than 45 percent. There will come a time when the global economy needs the next China, but that time is not here yet.
Samuel Rines is an economist with Chilton Capital Management in Houston, TX.
Image: Flickr/Wenjie, Zhang. CC BY 2.0.