Whither China?

Staffan Holgersson/Flickr/Getty Images
The skyline of Shanghai, looking from the Haitong Securities Building toward the Pudong financial district, 2007

Westerners have perceived a potential economic threat from China for a very long time. Their chief protection, they thought, was the distance. In 1750 David Hume wrote that “a Chinese works for three-halfpence a day, and is very industrious. Were he as near us as France or Spain, every thing we use would be Chinese.” But of course China was not that close: “The distance of China is a physical impediment,” Hume explained, “reducing our commerce to a few commodities; and…heightening the price of those commodities, on account of the long voyage, the monopolies and the taxes.”1

Today China seems a lot closer. So does India. New technology is continually removing barriers to international trade, cutting the cost of long-distance transport for tangible goods and making it possible to provide an ever wider array of services remotely: not just writing computer code and staffing call centers and processing accounts, but higher-end activities too, like artistic design and legal research and editing.

As a result, the successful countries in the developing world (that is, those that are actually developing) are now narrowing the gap—in income per capita, in living standards, and in the structure of their economies—that has long separated them from the industrial and postindustrial West. For the better part of two centuries, the areas of the world that first became industrialized pulled ahead. Now those that are following are catching up. The historical divergence between them and the West has given way to convergence. China now ranks second, behind only the United States, in publication of scientific papers.

At the same time, those parts of the “developing world” that have to begin this process, for example in Africa, are continuing to lose ground compared not just to the West but to the more successful developing countries as well.

As Hume and other Westerners ever since anticipated, this convergence is not unreservedly welcome in the higher-income countries. One set of concerns, more political than economic, focuses not on the process as a whole but only on the converging countries that have especially large populations: specifically, China and (at a more distant horizon) India. China’s population is more than four times that of the United States, and India’s is nearly as large as China’s and growing much faster. Although China’s production per person is only one sixth of America’s, after allowing for differences in the prices of goods in the two countries, with its much larger population China is already the world’s second-largest economy.2 Within another decade China’s will be the largest. India, where production per person is only half what it is in China, remains well behind; but with rapid economic growth and rapid population growth, India’s emergence as the world’s third-largest economy is now within sight.3 In time, both will surpass the US …

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  1. 1

    David Hume, Letter to James Oswald of Dunnikier, November 1, 1750, The Letters of David Hume, edited by J.Y.T. Greig (Oxford University Press, 1932), Vol. 1, p. 144. 

  2. 2

    The US GDP was $14.6 trillion in 2010. Measured at the official exchange rate, China’s was $5.7 trillion (just ahead of Japan’s, which was $5.4 trillion). But China keeps its currency artificially undervalued. On an equal-purchasing-power basis, China’s GDP was $10.1 trillion, more than twice Japan’s. 

  3. 3

    Before 1978 India’s per capita production was twice China’s. Their reversal of places, after China adopted Deng Xiaoping’s economic reforms but while India was still caught in its unique combination of Soviet-style planning and British Raj regulation, is one of the most dramatic demonstrations of the difference economic policy can make. In 2010 India’s GDP was only $1.6 trillion measured at the official exchange rate, well below that of the larger European economies; but on an equal-purchasing-power basis it was $4.2 trillion, nearly as large as Japan’s.