Why China will not replace the USA as the global number one

Why China will not replace the USA as the global number one

Some believe it is only a matter of time before China overthrows the USA as the proclaimed world leader. This will not happen in the near future - the Americans are too big for China.

It has been predicted for almost two decades that China will overtake the USA. At first, the forecasts were based on economic performance, then increasingly on its status as a global power. China is ambitious, they say, and China tends to have little regard for its own people. But that is precisely China's greatest weakness. No one can fight their own population and win in the long run. The Nazis failed, Stalin failed, the Soviet Union failed. Dictatorships have always failed in the long run. The fact that the Chinese dictatorship still holds on is due to the dramatically increased prosperity over the past 50 years. Which is not the merit of the Communist Party, the red aristocracy, as the Communists are called, but precisely of the extremely hard-working Chinese population.

Ray Dalio, a successful U.S. hedge fund manager, regularly sings a swan song about his own country. The tenor: All good things must come to an end. In the ascendancy, a country gains competitiveness, among other things, through education, builds up a strong military, does a lot of international trade, trains a strong innovative force, and the currency has a reserve status. All true in this generality. The fall of a nation begins with wealth inequality, declining educational standards, debt bubbles and, in the end, unlimited money printing. The U.S. supposedly reached its peak after World War II. They were a world power even before that. Great Britain was replaced by the U.S. at the turn of the century. So much for Dalio's thesis, which is of course not completely implausible in this generality. However, it does not follow that America will fold.

Economically, China is no longer in the fast lane. Xi's crazy No-Covid policy suggests a severe lack of rational judgement. The Chinese president is brutally shooting his country in the knee with the rigid Corona quarantines and arbitrary supply chain disruptions. After all, once production is gone, it won't come back.

Moreover, for several years now, the percentage of the population of working age has been shrinking. The population as a whole is no longer growing and will decline. This is a major demographic headwind that will most likely continue until 2055. The USA is also getting curve balls thrown at, but the trend is much less pronounced. Moreover, the population continues to grow in principle. If, on the other hand, the population declines, there will be less need for real estate, infrastructure. Exactly what China is facing. The enormous investment boom in infrastructure and real estate is therefore coming to an end in China. Since the sector accounts for almost 30% of economic output, high growth is illusory without an acceleration in this area.

The Russian strike against Ukraine is also inconvenient. China's die-hard loyalty to ailing Russia is clumsy at best. Within days of the start of the Russian war, the world was divided into two blocs. The U.S. is now taking the lead again, uniting its former allies behind it. China and Russia have become outsiders.

A world power is made and supported by allies. Years of decline have suddenly been reversed. China, meanwhile, is coming under increasing pressure. It is precisely the policy of non-interference and investment in the new Silk Road that are putting China in trouble. Sri Lanka is not the first country to fall into a debt trap, not least because it overstretched itself with investments.

Investment and money from China were long welcome because there were no political strings attached. Now more and more countries are realizing that they can't make it financially. Scepticism is growing and China's influence via investment threatens to become a disadvantage. 

The significance of what is happening right now will probably not be fully grasped for a few years. Personally, I wouldn't be surprised if 2022 goes down in history as the year China lost out on the chance to replace the U.S. as the world leader.

For those who are interested: I am happy to admit that I would be extremely pleased about that.

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