The forty-year gap between China and Japan
I just noticed something: there seems to be a forty-year gap in GDP growth between China and Japan. The resemblance is uncanny. Even the Japanese (U.S. dollar) GDP surge in 1977 and 1978 is paralleled by the Chinese surge in 2017 and 2018:
I did a regression analysis and found the residual to be precisely 39 years. Note the shorter the time gap between China and Japan, the sooner China is to likely to enter into a Japanese-like stagnation. Note also the Chinese slowdown has been much faster -Japan’s U.S. dollar GDP relative to the U.S. grew by .89 log points between 1960 and 1970 and .67 log points between 1970 and 1980, while China’s U.S. dollar GDP relative to the U.S. grew by 1.23 log points between 2000 and 2000 and 2010 and only .56 log points between 2010 and 2020. The general trend fits -Japan’s economy took off during the late 1930s, China’s just 40 years later, in the late 1970s. Similarly, it seems likely China’s economy as a percentage of the U.S. will peak around the mid-2030s. The factors that led Japan to fall behind after that are well-known: Chinese and Korean competition, failure to technologically upgrade its economy due to failure to reform its institutions, and poor demographics. All three may happen to China (foreign competition from Eastern Europe, India, and Southeast Asia, insufficient pro-market reforms, and a continuing tendency of the total fertility rate to fall), though China seems less likely than Japan to be stuck in any of the three traps (sources of foreign competition are less likely due to China’s sheer size, China’s leadership seems more committed to the path of reform than Japan’s, and China’s leadership seems more proactive on the fertility front than Japan’s leadership). China’s leadership should always keep the lesson of Japan in mind when planning out its future.
> Similarly, it seems likely China’s economy as a percentage of the U.S. will peak around the mid-2030s.
That sounds about right. Among the best analysts - at least in the English language - that I have found on China is Derek Scissors. He was an early skeptic of 'Sinotriumphalism' and in his view, China will likely gain on the US for the next 10-15 years but then plateau.
China's economy may slightly exceed the US GDP, but China has few friends. The EU is basically an extension of US primacy. China has nothing comparable.
If you adjust for population, i.e. per capita, then things look even worse for China. It has a total debt to GDP ratio of around 300% (public+private), which is similar to the US, but only 1/6th the income per head. I doubt it will reach Japanese levels of per capita GDP.
If you look at the 2010s, they achieved relatively high growth at the expense of future growth by gorging on debt. That never works in the long run. Michael Pettis has written a lot about this. Essentially the re-balancing of the Chinese economy never happened and in some ways even regressed under Xi. The price was collapsed productivity growth, papered over by a debt-binge.