Date: 07/28/2023
Author: Mr. X
Get ready for the Indian century, not the Chinese.
Early in the COVID-19 pandemic, many observers thought that the crisis was proving the superiority of the Chinese system of government. China’s centralized form of government, control over public debate, and stern measures to combat the pandemic seemingly showed that it was better than the Western world’s more chaotic response.
That take has aged like fine… milk. China has arguably never recovered from the pandemic. Rare public protests exploded throughout the country over poor handling over COVID-19. While the American economy has stormed back and has avoided a recession, China is declining economically and even geopolitically. China’s most stalwart major ally, Russia, is caught in the mire of the war in Ukraine, a war that China is too cautious to fully support. China also finds itself confronted by a newly resurgent American led alliance in the Pacific, with Japan, South Korea, Austrailia, New Zeland, and other powers joining forces.
China’s economic recovery continues to stumble. According to the most recent figures from the purchasing managers index (PMI), factory activity contracted for a fourth straight month in July. Non-manufacturing activity has actually slowed to the weakest rate this year.
Chinese officials have said that there will be a “tortuous” economic recovery. There was only 0.8% growth in the second quarter, compared to 2.2% quarter-on-quarter in the first one.
China’s international reputation is also suffering. Just about 40% of Chinese-Americans viewed their own former homeland favorably. China will be unable to exploit its diaspora for geopolitical advantage, even when it comes to Taiwan.
In contrast, India is forming strong links with the United States and other Western powers, even as China is re-evaluating its own economic relationship with the country. Indian economic growth far outpaces America’s. At 8% annual growth in GDP with America at 2% (admittedly unlikely but possible) India would outpace the United States by 2073. India is already the world’s most populous country, topping China.
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According to Goldman Sachs, India will have the world’s second largest economy by 2075. Key to this will be its low dependency ratio, with a relatively favorable ration between its working population and its number of children and elderly. Infrastructure growth is considerable, though Goldman Sachs is urging greater labor force participation, notably with more women. Of course, that might complicate the demographic picture that it is so enthusiastic about.
However, its demographic picture is extremely favorable compared to China. China’s population will decline below one billion by 2080 and 800 million by 2100. The working population in the country will decline by mid-century even as the dependent population dramatically increases. China is also losing what inroads it was making in the West, with Italy pulling out of the Belt and Road Initiative and calling it a major mistake.
The relative collapse of China and the strong position of India should cause investors to question experts who bet on China’s inexorable rise. The property crisis in China is also a major consideration, with values still probably inflated. Finally, one should not rule out the possibility of China doing what authoritarian governments usually do when facing economic problems – seeking foreign glory through a military adventure.
Mr. X is an investment analyst working in the Washington DC area who specializes in the intersection of business and public policy. After fifteen years working in politics, he writes on a classified basis for RogueInvesting.com to bring you news on what those with power are debating, planning, and doing
