2. Many observers rely on flawed indicators to gauge Chinese economic power
For example, some analysts believe that China is the world’s “leading technology-based economy” because it exports more high-technology products than any other country.
But Chinese high-tech exports are not very Chinese and not very high-tech: Over 90 percent are produced by foreign firms and consist of imported components that are merely assembled in China. These percentages have increased over time, a trend that suggests Chinese firms are falling further behind foreign competitors. Indeed, in any category – research and development, patents, profits – Chinese high-tech firms have fallen further behind their American counterparts over the last two decades.
Another misleading statistic is China’s debt-to-GDP ratio, which the Chinese government lists at 17 percent. America’s debt-to-GDP ratio, by contrast, will remain above 60 percent through 2020.
But most Chinese state spending is not reported in official figures because it is funneled through investment entities connected to local governments. Studies that account for this spending place China’s debt-to-GDP ratio between 75 and 150 percent.
And things are only likely to get worse for China. Because of the one-child policy, China will soon suffer the most severe aging process in human history. The ratio of Chinese workers per retiree will plummet from 8:1 today to 2:1 by 2040. The fiscal cost of this swing in dependency ratios alone may exceed 100 percent of China’s GDP. The American working-age population, by contrast, will expand by 17 percent over the next 40 years. America’s fiscal future may not be bright, but it is brighter than China’s.