A Rising Power in Decline?

On October 19th, China announced its weakest quarterly growth rate since the financial crisis: 6.9%. For the past few years, China’s economic slowdown has been making headlines and raising questions about what role China will play in the global economy when it shifts away from being an export economy. Will China still become the new “economic superpower?” If so, what does that even mean? China’s “slowdown” is relative, and its growth rate is still consistently two to three times that of the United States. According to a Pew Research Center survey, most people worldwide believe that China either will replace or has already replaced the United States as the world’s economic superpower. Indeed, America and China are already roughly tied in terms of their shares of world GDP, the US is at 16.14% while China is at 16.32%. Estimates as to when China may surpass the US in terms of GDP vary and are frequently revised, but one need not look into the future to find examples of how China conducts itself like a superpower.

China’s steadily decreasing domestic demand for commodities has led to a global drop in commodity prices. Negative effects of this are exacerbated in regions like South America and Africa, where China has invested heavily for the opportunity to access cheap minerals and agricultural products. Critics say that Chinese investment has incentivized many developing nations to specialize in commodities so they can meet China’s demand, and some developing countries have done this at the expense of diversifying their economies to protect themselves from commodity price drops like this one.

China bankrolls massive infrastructure projects worldwide to enable it to cheaply transport commodities across continents, further influencing how developing economies are structured. Its downturn has not stopped this. This year, for example, construction began in South America on a transcontinental rail line across the Amazon and, as recently as October 16, production started on an $11B port in Tanzania that some expect will be East Africa’s largest. China’s push to generate support for its Asian Infrastructure Investment Bank has also not lost momentum as it builds ties abroad.

However, this summer’s flailing stock market and the Chinese government’s ham-handed interventions to try and control that market provide us with an example of how China may fall short as a traditional economic superpower. China’s reactions to fluctuations in the stock market ranged from banning selling, requiring buying, and devaluing the yuan to its lowest rate in years. Such economic tinkering is characteristic of the Chinese government, and does not amuse investors. For this reason, it is unlikely that the yuan will soon be as trustworthy a reserve currency as the dollar, regardless of the size of either economy.

One thing is clear; if (when) China’s economy outstrips the United States’, it will be a very different sort of economic superpower. If past behavior is any indication, it is likely that China will focus its diplomatic influence on trade advantage, and that it will micromanage its currency in a way that diminishes demand for it and empowers other currencies. Whether it will be able to achieve its goal of building a global import network as its growth declines will depend on how great this slowdown proves to be.

Speaker Primer: Ambassador Wendy Sherman

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