China a 'Precocious' Superpower? - Arvind Subramanian

China a 'Precocious' Superpower?

by Arvind Subramanian, Peterson Institute for International Economics

Op-ed in Business Standard, New Delhi
October 26, 2011 

Can a country that is not amongst the richest in the world and also not at the economic and technological frontier be a superpower? That is one of the most common questions raised against the central assertion in my recent book that China's economic dominance is more imminent, broader in scope, and greater in magnitude than is currently imagined.

My projections suggest that by 2030, China will not be poor; indeed, its per capita GDP (in purchasing power parity [PPP] terms) will be more than half that of the United States and certainly greater than the average per capita GDP in the world.

China's economic dominance will still be unique, because historically, the dominant powers (the United Kingdom and United States) have been rich, indeed amongst the richest relative to their competitors, when they have been dominant. In China's case that will not be so. But neither will it be a case of a poor country wielding power. China will be a middle-income or upper-middle-income country. So, perhaps China's future economic dominance should more aptly be described as that of a "precocious" rather than "premature" superpower as Martin Wolf of the Financial Times has described China.

But is precocious superpowerdom even possible? History is clearly on the side of those who believe that dominance requires a high standard of living. Why might this be the case?

First, a poor country might be inwardly focused because the tasks of maintaining internal stability and achieving a higher standard of living are the government's major if not exclusive preoccupation. In this case, projecting power internationally will have to be subordinated to addressing more pressing domestic challenges. Internal fragility sits uneasily, or is just downright incompatible, with external dominance.

Second, a poor country might not be able to raise the resources—at least on a sustained basis—for the projection of power internationally. The classic example is military resources. These will have to be financed. But the poorer a country, the more difficult it might be to tax the people to raise resources. For example, tax revenues generally rise with the level of development. Russia sustained military dominance for some time beyond its underlying economic potential, but eventually economics caught up with geopolitics. North Korea is a more extreme example of external power being incommensurate with internal stability and wealth. North Korea can be a nuisance, a country that can cause trouble, but hardly one that can exercise international dominance.

A third reason why a poor country cannot project dominance is that it may not have the "soft power" attributes—such as democracy, open society, and pluralistic values—for dominance. Put differently, the leadership that comes with dominance is only really possible if it inspires followership. And followership comes when the dominant country stands "for" something that commands universal or near-universal appeal.

The fourth reason, related to the previous attribute, is that only a rich country—which by definition is at the frontier of economic and technological possibilities—can be a fount or source of ideas, technology, institutions, and practices for others to follow and absorb. A poor country is less likely to be such a model worthy of emulation and an inspiration to follow.

So, clearly, dominance is inconsistent with being extremely poor, but if one reflects on these points, it is worth noting that with some exceptions, neither does dominance necessarily require being among the richest countries. There is, for example, no reason why internal cohesion, the ability to raise resources for external purposes, the possibility of being democratic, or possessing some emulation-worthy national narrative or values or ideals is inconsistent with being a middle-income power, as China is likely to be by 2030.

Moreover, China's current low standard of living is entirely consistent with different forms of the exercise of dominance. For example, China has used its surpluses to provide aid to and finance investments in Africa, extracting in return the closure of Taiwanese embassies. It has used its size to strengthen trade and financial relationships in Asia and Latin America. (China's offer to build an alternative to the Panama Canal to boost Colombia's prospects is one dramatic illustration of this phenomenon.) More recently, it is to China that the world will have to turn should things turn ugly in Europe and should additional resources be required to bail out some of the faltering European economies. ("China is Spain's best friend," effused Spanish Prime Minister José Luis Rodríguez Zapatero in April 2011, on the occasion of the Chinese president's visit.)

Most strikingly, China has been following an exchange rate policy that has adversely affected not just the United States and Europe but a number of emerging markets that compete with China, including Brazil, Mexico, India, Turkey, Vietnam, and Bangladesh. But the rest of the world has been powerless to change China's policies. If this is not dominance, what is?

Even the mighty United States has repeatedly threatened action against China but has not been able to carry it through. It barks but cannot bite. The shift in the balance of power in the US-China relationship is especially striking given that it was only about a decade ago that the United States was able to muscle China into radically opening its agriculture, goods, and services market as part of China's accession to the World Trade Organization.

So two possible conclusions suggest themselves. A form of dominance that naturally inspires followership and which might be necessary to create or build systems and institutions—as the United States did after World War II—might possibly elude China for some time, especially if it is unable to make the political transition to democracy. But other forms of dominance—to change the policies of other countries and resist change to its own in a way that can result in systemically negative externalities—are already being exercised by China at low levels of income. As China becomes considerably bigger and richer over the next two decades, what should we expect?

Arvind Subramanian is author of Eclipse: Living in the Shadow of China's Economic Dominance