The Dynamo Slows

For years, we’ve accustomed ourselves to reading about the breakneck pace of economic growth in China.  Now officially the world’s second largest economy and the most populous country in the world, many of us in the US have made China our new bogeyman, someone to replace the evil Soviets.  And while China is still a massively important country and will continue to grow for the foreseeable future, brace yourselves for something new to happen there.

For the first time in recent memory, economic growth there is set to fall from its stratospheric highs.  For as long as I can recall, we’ve heard nothing but economic optimism coming out of the People’s Republic, with growth rates moving only higher.  Growth in China will still continue, but it’s going to do so at probably 7-8% a year, instead of the +10% levels we’ve seen in the past few years.  This is a natural economic phenomenon, and it happens in every country once it reaches a certain level of development.  And, truth be told, it’s not entirely a good thing for the United States.

Stability in China has been achieved through a tacit bargain that the Communist Party has struck with the Chinese people: We buy you off with an ever higher standard of living, and you let us run the show.  With an upcoming transfer of leadership later in 2012 wherein the upper echelons of the party will be replaced with a new crew of party functionaries, there’s a bit of room for worry as to how the freshmen leadership team will respond to the slowdown in goodies with which they’re buying off their country.  Consider also the already tense situation in many rural districts, where protests are beginning to occur with ever more frequency.

China is entering uncharted waters.  What makes it so significant is its size.  Never before in history has a country grown so large so rapidly.  And whereas other developing states made a transition to democracy after growth had been well established, given the size and the dynamics at play in China, what happens next is very uncertain.  It could well make that transition to democracy in a smooth fashion, or it could descend into chaos.  Whatever does happen, however, will likely be the last thing possible that we anticipate.

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