CDR Salamander - Did China Culminate and No One Noticed?

I mentioned in passing on Sunday’s Midrats Podcast a graph attributed to Bloomberg that wandered into my feed right before the show. Here it is.

It’s not new. It came out a few years ago. I’ve looked for the original article, but no joy. However, it has been picked up in quite a few places with no challenge, so let’s assume it is ligit.

The implications here are absolutely critical, as it should impact a lot of the planning assumptions people have been using as they look at a rising China and the moment that it passes the U.S. economically.

Not wanting to get head-faked, I looked around for other data that might show similar data.

There’s more.

That shows the same inflection point.

I like Martin Varsavsky’s commentary on the above graph:

The United States has a habit of watching its rivals shrink. The Soviet Union collapsed. Japan, which was supposed to own America in the 1980s, is now a far smaller economy. China looks set to follow.

In 2021 China's GDP reached 76 percent of American GDP, and the consensus was that it would pass the US before 2030. That consensus has collapsed. By 2024 the US economy was 29.2 trillion dollars against China's 18.9 trillion, a gap that has widened for three straight years. China's working-age population is shrinking. Its fertility rate has fallen to roughly 1.0, half of replacement. There is no immigration to compensate.

Yet America benefits from believing it faces a formidable rival. The belief is what keeps it competing.

There is something very insightful in the above: the American character of striving and competition. We don’t like losing. We don’t like losers. Nationally, do we need to hear footsteps to do our best? If so, why just us?

Did we boost ourselves in response to all the doomerism of a decade ago, or was that data skewed and inaccurate?

This article from March in Fortune by Nick Lichtenberg is based on another chart.

Let’s look at his commentary first, as it represents where my thoughts have been the last few years.

The BofA Institute’s report frames today’s shifts as part of a familiar pattern: “renewed focus on affordability, rapid advances in AI, and a broader shift from services back toward manufacturing”. Those three forces — cost deflation, AI disruption, and the reindustrialization of the global economy — all tilt, at least at the margin, toward China’s strengths rather than America’s.​

What the chart ultimately shows is not that American exceptionalism was a myth. It’s that it was a moment — a historically contingent window, opened by catastrophe elsewhere and now gradually closing as the rest of the world heals, industrializes, and competes. For 2,000 years before the American century, the world’s largest economy sat somewhere along the Yangtze River. The line on the chart that shows China’s share plummeting to near-zero and now racing back upward is not a story about China catching up.

It’s a story about the world returning to normal.

Here is where I am starting to think that there is a flaw in this argument: this is all based upon two assumptions that were a givens for centuries, but no longer exist:

1. Population is growing via a vigorous total fertility rate

2. Populations will skew to a younger demographic

On a global basis, especially in East Asia, those are past assumptions that are not coming back.

Sure, over the last few centuries on occasion humans were visited briefly by unusually vicious wars, epidemics, or Mongols, there were temporary population contractions, but the two assumptions were still in play.

As a species, we’re entering a new age that historians will have to define in the coming decades, as the future is already baked in. You cannot suddenly create 30-year-old Chinese, South Koreans, Japanese, Singaporeans, Greeks, or Poles.

What we will have mid-century may not be defined by a race for global domination, but instead a race to try to manage unbalanced demographics, sagging with disproportionately large cohorts of unproductive, net-consuming elderly compared to a smaller and shrinking working-age, net-productive population.

If this data is correct—and the usual caveats about valid data coming out of China apply—we will need to watch the second half of this decade to see if the trend holds.

If it does, will it signal a more or less dangerous China as she tries to respond to this shift, or will it just shuffle along, having grown old before she could grow to dominate?

Good question. Not sure I have an answer to that right now.

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