China Comment

Energy, Environment, and Economy

Off The Shelf: Futurecast 2020 (Part I)

Futurecast: 2020 argues that only the United States and China will be considered great economic and political powers in 10 to 20 years. Its author, Robert Shapiro (a former Clinton Administration advisor) reaches this conclusion primarily by arguments based on demographics (aging in countries), obligations (European social safety nets will drain their coffers and ability to produce), innovation (Shapiro argues America can uniquely benefit), and business development (Shapiro argues both China and the United States possess good capabilities and regulatory environments).

I will discuss Shapiro’s most provocative statements in an analysis of what the future holds for China and the United States in relation to the rest of the world.

MILITARY

* Shapiro gives a possible warning of future confrontation between China and the US. “Even deep economic relationships do not preclude wars between the parties, once they’re each other’s near peers in military power.” (20) For example, in the “calm” before WWI, world trade was at an all-time high. and yet that trade led to war, and an arms race rather than peace.

China’s military spending budget has increased by double [percentage] digits for 20 consecutive years, this year rising nearly 18% to at least $59.6 billion (There are many estimates of the precise amount of spending since China does not calculate its military spending the same way that other countries tend to calculate theirs; but the important thing is that China is spending AT LEAST this much.)

However, it is unlikely, even given current levels of assumed spending, that China will be able to challenge the US even on a regional scale until around the year 2020 (Zalmay Khalizad discusses it HERE; but Mulvenon, Cordesman of the CSIS, and others have discussed China’s military force at length in full-length books).

But being directly able to match the US tank for tank may not matter since the Chinese are investing a lot in asymmetrical warfare. The most famous book on China’s asymmetrical and military policy is China Debates the Future Security Environment, by Michael Pillsbury. It’s a little out of date (from 2000), but it’s free on the Internet so it is easy to check out. (A slightly alarmist report on Chinese cyberterror from The Guardian is also available.)

ECONOMIC SUCCESS

Shapiro argues that “demographics and globalization will intensify economic inequality almost everywhere” (22); but that the societies with the greatest inequalities will likely be the richest, like China and the United States, since globalization allows returns on investment to rise (22).

Shapiro discusses how China and the United States are best positioned to take advantage of globalization due to their “freewheeling market capitalism” (16) which allows for innovation and can help the countries escape the burdens of aging and social-welfare systems Shapiro argues will plague Europe and lead to a “geopolitical marginalization” (21)… since “Europe has steadily cut its defense capacities and commitments…[it is] likely to be preoccupied politically with the fierce domestic conflicts certain to erupt when that slow growth collides with the tax hikes and spending cuts requried to keep their pension and health-care systems going (21).

Due to these declines, Shapiro argues, Europe will by necessity grow closer to United States whose military can protect Europe and help ensure its steady flow of raw material resources.

OTHER DEMOGRAPHICS

Shapiro touches on China’s aging; but notes that its large population, if properly educated, can mitigate most of the troublesome effects of a declining workforce. Even if China grays, its population is not expected to begin aging until the late 2010s, and at least through the early 2020s, around 75% of the population will be working-age or younger.

Another factor explaining why China’s aging will not necessarily hobble the country, is that unlike most other aging countries; Japan, the US, and Europe, China has not yet reduced the size of its agricultural industy– it still represents around 43% of their labor force. China still has a long way to go on reducing agricultural employment and retooling that employment into more productive industries. Therefore, in terms of raw productive ability, China will be able to benefit from a continually expanding industrial-production pool as more agricultural workers shift into city employment.

However, Shapiro avoids a detailed discussion on China’s environmental or health problems. Considering how he allots much discussion arguing that China and America are strong countries with strong economies in part because they lack national health care, this is a bit confusing.

China’s environmental problems have gradually worsened; 16 of their cities are listed as the 20 most polluted in the world. The preponderance of pollution will lead to more chronic conditions, and more lost-days at work which can cut into productivity. When I lived in Beijing, every year we suffered a few “purple” level pollution days where the air quality index rated worse than 500 parts particulate matter pollution– the highest level measured.

INFRASTRUCTURE

Shapiro discusses the usual things about China developing massive amounts of infrastructure and still having a long way to grow. As a World Bank Report stated in regards to China’s massive infrastructure investments: “Annual capital expenditures for transport, electricity, piped gas, telecommunications, urban water supply and sanitation increased steadily from US$39 billion in 1994, to US$88 billion in 1998, and to US$123 billion (about 8.7% of GDP) in 2003.”

Infrastructure needs to be constructed rapidly to encourage continual expansion of China’s economy. According to the Economist “logistics costs… amount to 18% of GDP in China compared with 10% in America” and “between 2006 and 2010 $200 billion is expected to be invested in railways alone, four times more than in the previous five years. ” It will be interesting to see if China’s government can maintain those levels of investment, given the current global recession.

DIPLOMACY

Shapiro then explains how China’s growth and increasing relevance in international trade and resource transfers will encourage new diplomatic alignments. Shapiro argues that a China and Europe alliance or a China and Russia alliance could pressure America and cause it and its world financial institutions to alter policies (40).

PART II will discuss Russia and India, Recipies for Success, and Conclusions on the book.

Feel free to sound off in the Comments section of this post for your opinions on the book and my analysis.

Futurecast 2020

by: Robert J. Shapiro (Undersecretary of Commerce 1998-2001, Senior economic advisor to the Clinton, Gore, and Kerry Campaigns, cofounder of SONECON LLC.) 2007.

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23 June, 2008 - Posted by | Book Review, China Environment/Health, China Future | , , , , , , , , , ,

2 Comments »

  1. Having written my senior capstone thesis on China’s asymmetrical military development, I have studied considerably the Chinese military expansion of the last three decades. My alarm bells went off upon reading that the author in question warns of a possible military confrontation between China and the US.

    Everything I have read and studied indicates the last thing the Chinese want is a non-localized conflict with an adequately armed adversary. The possibility of war derailing their economic growth proves a sufficient deterrent.

    The focus on asymmetrical warfare merely indicates that Chinese assume that the US might decide to lean on China in the future, using military superiority to enforce blockades and such. If the Chinese are properly developed asymmetrically (since they have no realistic hope of matching the US “tank for tank” any time in the near future) the US will have reason to reconsider any military posturing in East Asia.

    In today’s political environment especially, victory is not the greatest concern for the US, a fact of which the Chinese are well aware. Instead, as a result of the Iraq War, the US needs to better justify any military involvement with confidence that losses will be minimal. China has spent hundreds of billions to make sure that America can have no such military confidence against the PLA, especially if China has the home-court advantage.

    Essentially, I believe that China’s asymmetrical war machine (almost perfectly asymmetrical with the US military) functions primarily as a deterrent, and perhaps as a secondary or even tertiary concern, a well-built defense against American muscle.

    Meaning: the Chinese do not want a conflict with the US, and their lack of aggressive movement can almost be banked upon. Finally, the US cannot afford the losses associated with a conflict against an asymmetrically armed China.

    With neither side in a position to start a conflict, the possibilities for one occurring seem diminished, at least in my eyes.

    Great blog Francis, keep up the good work.

    Comment by Chris O'Brien | 26 June, 2008

  2. Dear Chris,

    Good analysis. I especially agree with- “The possibility of war derailing their economic growth proves a sufficient deterrent. ” But only if two caveats are included.

    1.) What if China’s growth slows? Then what is Beijing left with? They will have an increasingly unequal society that isn’t getting rich any more. What will the Communist Party turn to in order to rally the people? Will they turn to nationalism? Will they turn to irredentist claims… A China without strong economic growth is a China that has less to lose and which could flail in a number of directions. Which brings us to Caveat #2.

    2.) Taiwan, T&&et, Xinjiang and other border provinces. China can marshall a lot of nationalist good-will if their government focuses the people’s anger on forces threatening to allegedly split their country. I could very much see Beijing marshalling its resources to recover Taiwan in order to stoke domestic popularity.

    And everything China is developing appears to be designed to discourage the United States from intervening in a short conflict with minimal casualties that lasts less than 30-60 days.

    Of course, the US might not get involved in such a conflict, but it could become involved under certain circumstances? And that’s what could lead to war. China might decide to launch a preemptive strike.

    Shaprio’s main point appeared to be that the US and China might get into an arms race, and I think he’s spot on about that.

    Both countries are focusing on greater IT defense and technologies. For example, the US Air Force recently opened a “Cyber-command” for defense. And both countries have conducted ASAT tests. China is investing increasing amounts in Space development which could lead to future space-based warfare designed to deny the US its C4I strengths of information-gathering technology.

    China still has a way to go to catch the US in total amount spent on its military, but moreso than any other country, China could match the United States’ spending. And when arms races evolve- like the US/USSR arms race, tensions increase. I think that’s the danger that Shapiro is pointing out. And that’s a danger that contains a lot for people to fear.

    Comment by chinacomment | 28 June, 2008


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