After reading a fair bit about China lately I've been wanting to adress some concerns that some foreign policy and geopolitics specialists seem to have regarding China. Everyone seem to agree that China is on the rise in terms of power and many are frightened, espescially Americans. Some seem to think that Chinese dominance in terms of economic power is inevitable and given that military power has two components, population and wealth, according to this narrative Chinese military dominance is inevitable too. In this piece I want to try to give a brief introduction to Solow's theory of growth and explain why China probably won't continue to its spectacular speed of its rise, meaning that Chinese hegemony over Asia is all but a matter of time.
Solow's theory growth at it's base states that the source of economic growth is always productivity growth. Productivity growth comes from two sources, namely capital deepening and technological innovation. Capital deepening means an increase in levels of capital per worker, or in plain English that workers get access to more/better tools to produce things. For example going from tilling fields by hand to using a tractor will make farmers more productive leading to growth. An economy gains more capital through investing, and investment depends on savings through a mechanism I don't have time to explain here. Like all things there are diminishing returns to capital so eventually growth due to capital deepening stops when the economy reaches a point where it has the level of capital per workers it needs. This is why Western European economies don't grow as fast now as they did in the post war era, because these economies now have all the capital they need and thus don't grow due to capital deepening. The other source of growth is technological innovation which in theory never stops. Technological innovation is quite slow and generally itterative meaning that it produces modest levels of growth.
From this theory there are some interesting take aways that quick readers might've already realised. First up, Solow's theory of growth predicts convergence, i.e. that at a certain point all economies will be at the stable level of capital and thus equally efficient. Naturally reality is more complex and this may or may not ever happen. Secondly, an economy has a productive cap depending on its population meaning that given a level of technology there is a point at which an economy cannot grow any more without technological innovation. Finally, an important take away is that high levels are fundamentally impossible to sustain indefinitely.
China has a substantially larger population than the United States so therefore it would be a lot more productive than the US economy if it had all the capital it needs. This confirms the notion that Chinese dominance is inevitable, but we need to remember that reality is more complex than theory. For one thing the theory holds no rooom for economic policy so particularly bad economic policy can hamper growth. It's also going to take China longer to reach its potential than many assume. It's easy to use history as a guide and assume that because China has been able to maintain high levels of grotwh since the 80's when Deng Xiaoping reformed the economy that it will continue to grow fast whereas in reality as capital deepens growth reduces in speed. My main argument in this piece is that while China has all it needs to become a global superpower it is not there yet and won't be for some time. It might be very soon on the timescales of empires where a generation isn't very long but for you or I Chinese global dominance is far off. Who knows if China will hold together until then? History is funny, who predicted the French and Russain revolutions? The fall of the USSR or Rome? The black plauge or HIV? A Swedish proverb holds that one shouldn't yell hello until you're over the river, meaning that it's not over until the race is done and in this case China shouldn't yell hello for many years to come.
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