How China’s Future as an Economic Superpower Affects U.S Relations:
#5 takeaways :
1: China may no longer be on track to surpass the United States in GDP. China’s leader, Xi Jinping, has stated that the country’s entire economic size, or per capita income, might quadruple by 2035. Although it has long been assumed that China will inevitably surpass the United States in GDP, Beijing’s willingness to implement extensive reforms is critical, according to Bert Hofman, Director of the East Asian Institute at Singapore National University, who spoke to NPF’s International Trade Fellows. During the pandemic, both the United States and China’s economies performed poorly. However, China trails far behind in terms of productivity, with per-worker productivity being only one-quarter that of the United States, according to Hofman. The annual per capita income is equally low, at $12,000.
2: If China wants to, it can increase worker productivity. Hofman highlighted five reforms that China may do to boost productivity and GDP development. First, it would face significant demographic challenges, such as low birth rates and an ageing population as a result of its one-child policy. But “demography is not destiny,” Hofman stated. China has begun to spend on human capital boosters such as education, but the results have been delayed. Increased investment has helped China to quickly catch up, despite having a huge rural population with little access to education. However, Hofman’s figures indicate that additional cash will be required.
3: Additional R&D investment will be necessary. To overcome the United States, China must continue to invest in R&D. According to Hofman, China already spends approximately 2.5% of its GDP on R&D, which is higher than Europe’s investment. “That is going very much in the right direction.” According to Hofman, China can continue to grow by investing more in education and technology, but this plan has limitations until structural (human) reforms are implemented.
4: More expansive reforms would be required for China to overtake the US GDP. According to Hofman’s estimates, China’s infrastructure spending alone will not generate enough growth to overtake the United States in GDP growth. “China has been misallocating… quite a bit of its savings,” he told reporters. Its abundance of vacant apartments is a drain on the economy. “If you don’t solve bottlenecks, if you have a lot of empty apartments, in the end, it doesn’t add to productivity, doesn’t add to GDP,” he went on. Growth-enhancing reforms may include raising the retirement age for women to 65, scrapping the household registration system, strengthening the bankruptcy system, and upgrading rural land and education, he suggested. China is likely to implement these adjustments. Hofman stated that the pace with which the reforms are implemented is crucial. “The differences are not significant, but under a low-reform scenario… I can assure you that Xi Jinping’s aim will not be realised. “It will be met in a comprehensive reform scenario,” he stated.
5: The trade war between the United States and China proved costly for both parties. According to Sanjana Goswami, an assistant professor at the University of Singapore, the China Shock, or significant growth in Chinese exports that began in 2001, has been followed by a measurable dent from the US-China trade war. Prior to the trade war, the United States imposed tariffs on approximately 5% of Chinese exports. After a series of retaliatory steps by both sides, it is now at 19%. She stated that about 58% of US exports are now subject to Chinese tariffs, whereas approximately 66% of Chinese exports are subject to US duties. The price increases have been entirely passed on to consumers, who have little redress, she stated. “There is no place for consumers to get together and say, ‘Hey, we don’t want “To pay higher prices on certain products,” she replied.