Foreign Policy Research Institute A Nation Must Think Before it Acts The Limits to China’s Growth

The Limits to China’s Growth

The impressive economic growth of the People’s Republic of China over the past quarter-century has led many analysts to predict that China will soon be the world’s largest market, have one of the world’s largest GDPs, and become the new economic and military hegemon. Encouraged and sometimes even subsidized by their home countries, Western corporations are keen to compete for a share of the China market, some of them so convinced of its future prosperity that they are willing to remain there even while losing money.

These expectations are uncomfortably reminiscent of what was said about Japan until quite recently. American business felt threatened in the 1970s and 1980s by ‘‘Japan Incorporated.’’ Management consultants praised the wisdom of what was seen as Japan’s Confucian corporate system, where school and family ties created homogeneous decision-making structures that favored the group rather than the individual. Western economists contrasted the U.S. stagflation of the Carter years with the vibrant Japanese economy; their Japanese counterparts were less optimistic, pointing to troubling structural problems in their economy. Even after Japan’s economic bubble collapsed around 1990, Westerners predicted a swift recovery. In fact, more than a decade later, the country still has not recovered. While the situations of Japan in the 1980s and China today are quite different, the Japanese experience should point to the dangers of predicting endless economic growth.

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