In China, Slowdown Is a Bigger Danger Than Growth

While China’s rise is often seen as a threat to other nations, Citigroup’s Peter Orszag argues that the world has more to fear from a Chinese slowdown than from continued growth. Furthermore, he writes, recent research suggests that China’s high inequality and aging population both increase its risk of stalled development.

China, after all, is fast approaching income levels associated with the “middle-income trap,” the point at which many other countries have moved from rapid to sluggish growth. This trap opens up for several reasons, including that economies expand disproportionately, at early stages of development, by shifting workers from agriculture to manufacturing. At some point, though, the gains from such shifts disappear, and new sources of growth are needed. China appears to be near this point.
[…] What would be the consequences if China falls into the trap? According to Yasheng Huang, a professor of management at MIT, slower growth could destabilize China’s internal political economy. That, in turn, could prove to be the far larger risk for other nations.
In a similar vein, China specialist Susan Shirk of the University of California at San Diego warns that it is China’s “internal fragility, not its growing strength, that presents the greatest danger.” And Aaron Friedberg, a professor of politics and international affairs at Princeton University, writes that a less prosperous China “may be a less effective competitor in certain respects, but it could also prove to be less predictable, more aggressive, and hence even more dangerous and difficult for the United States and its allies to manage.” Friedberg says weak leaders in China might be tempted to rally popular support by confronting other countries.

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