Is China’s decline permanent?

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News reports are replete with China’s struggles and decline. China’s past success is frequently labeled a “Bubble” with the question – Is it bursting?

Yes, China is in decline. But not just due to negative Global economic struggles. China has entrenched problems that are contributing to its decline. Are these problems intractable?

Following are significant but an incomplete list of its problems:

● Manufacturing processes and systems are at the same capability level as were in-place in the USA in the 1970s. Relatively inefficient production operations coupled with the sizable increase in hourly factory labor wages are reducing profit margins and free cash flow. A large percentage of Chinese company owners and managers do not have knowledge of the more productive methods of operating.

● The absence of trucking and freight forwarding capabilities to support expansion into lower labor cost Western China. In addition, it is difficult and costly to get quality managers to move to these remote areas.

● China needs to maintain its historic growth rates to ensure that capital is available to clean up its environmental problems. In addition, high employment levels must be available to mitigate the current increases in social protests and riots.

There are several other negatives for China. Click on these links to see further details:

Where is China Heading?

China’s Achilles’ heel– Obstacles to Low Cost

Will China duplicate Japan’s decline from its 1980s success level?

Not exactly the same as Japan since China’s leaders have a history of responding and changing its formulas. But some of its entrenched problems will not be easily solved and China’s pendulum will swing to the negative side of the ledger.

UPDATES: 

August 23rd New York Times article, Manufacturing in China Slows, reporting on a worsening economy.

Business Week’s November 15 article, “Xi takesChina's helm with many tough challenges”, further documents the serious problems facing China’s new leader. 

Where Is China Heading?

Mark Leonard's book “What Does China Think?” presents a number of China's modern beliefs and challenges.  Mr. Leonard discusses China's current struggles and the new priorities the Chinese State has determined are essential to address contemporary problems.

It is interesting, for the first time in China’s history, the State's 11th five-year plan does not list economic growth as the top focus. The plan includes mantras, such as: “put people first”…“respecting the natural environment”… and introduces a model which resembles some Scandinavian attempts in Social Welfare to address existing concerns.

The Book suggests China’s most pressing problems are:

1. The rise in protests,
2. The gap between rich and poor,
3. The near bankruptcy of the rural economy,
4. The lack of domestic consumption,
5. The pervasive corruption of the political elite,
6. The environment.

Official records cite 87,000 protest demonstrations in 2005, which is a ten times the amount of such displays since 1993.  It is most likely, the actual number of organized public protestations is much higher.

Mr. Leonard maintains the theory, modern China hopes to develop into an “Asymmetric Superpower”.  This conception believes the USA has an unhealthy obsession with military production, and this is the United States' greatest weakness, blinding policy-makers to the wider picture of military strategy.  Mr. Leonard's offering suggests the current Leadership of China, must include the use of economic, legal, and political tools as well, which is referenced: “non-military warfare”.  This modern version of China's “Economic Warfare” includes investing billions of dollars in “Special Economic Zones” within foreign Nations.

However, today China invests billions to improve it's military might, as Chinese Leaders correctly believe economic power without a strong Military, in context to the rest of the World, will reduce China as an overall power.  They prefer to obtain a Military Force which will become equal to the United States.

“China is attractive to other nations because of its economic power but this attractiveness will not last. It will need to change its political system to become a ‘Hyper-Power’ equal to the USA”.

But for China to achieve this status, the State will need to eliminate its incongruous and obsessive policy on a number of issues, it has mistakenly elevated to threats to its survival: Taiwanese and Tibetan freedom, the relationship with the Dalai Lama, the rise of Falun Gong, and various radical Muslim Enclaves.