US Intelligence Assesses China’s Future – Analysis

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By Richard Weitz

Every few years, the U.S. National Intelligence Council (NIC) publishes studies of how the world might evolve over the next two decades. Global Trends 2030: Alternative Worlds, released in December 2012, is the latest such iteration. Much of its analysis focuses on China, which the NIC assesses, will remain the most influential country in the world, after the United States.

The Global Trends series strives to provide a framework for stimulating strategic thinking about the most important critical trends and potential discontinuities that could shape alternate future worlds. One clear “megatrend” driving the world’s evolution is the growing importance of China’s economy. Not only is the China projected to have the largest national economy in a decade or so, but the NIC expects China to continue to deepen its integration into the world economy in coming years through more outward and inward foreign direct investment and Beijing’s assuming a leadership role in more international economic institutions. By their calculations, despite a probable decrease in China’s growth rates from the spectacularly high figures seen during most of the 1980-2010 period, China “will contribute about one-third of global growth by 2025, far more than any other economy.”

In its previous Global Trends 2025, the NIC depicted the most likely outcome as the continued growth of China’s economic and military strength, but the report also discussed the possibility that a lengthy economic slowdown could lead to “virulent and xenophobic forms of Chinese nationalism” if the Chinese government attempts to blame foreigners for China’s difficulties. Global Trends 2030 also warns that “a serious or prolonged Chinese economic slump could … reinforce latent fears about the potential regional implications of internal unrest there.”

The NIC also questions whether the past success of China’s “state capitalist” development model—in which the government largely directs national economic activity typically left to private sector market forces in traditional liberal democratic states—will continue to yield superior performance. For the past decade, Chinese leaders have acknowledged that their economic model—based on high rate of growth driven by top-down, state-directed domestic infrastructure investment driven by loans from state-owned banks—needs major reforms.

One imperative for change is that China could easily fall in the “middle-income trap” that has ensnarled so many other developing states whose growth plateaus after they can no longer achieve easy gains from adding low cost labor inputs to production. The PRC’s annual growth has fallen to below double-digit levels in recent years, with growing inflation and unemployment. In addition, the country suffers from extraordinarily high rates of wealth and income inequality, both between and within its regions. The financial system also remains vulnerable to collapse due to the large number of non-performing loans issued by state-owned banks to unprofitable state-run enterprises.

The NIC accordingly argues that Chinese leaders need “to manage the challenging transition to an innovation-and-consumer-based economy.” Toward this end, PRC leaders have declared  their goal to rebalance China’s economy into one less dependent on exports and public spending and aimed more at meeting the need of China’s consumers and private enterprises. But the Chinese government has hesitated to make some major reforms such as closing unprofitable state-owned enterprises by depriving them of capital, since the resulting massive unemployment could antagonize the Party’s working-class supporters.

The NIC is uncertain whether and when China could make the transition to a stable liberal democracy–one of their low-likelihood but high-impact “Black Swans.” In general, countries with higher per capita incomes and without large youth bulges are more likely to liberalize their political systems. In many other societies, rising national prosperity has led people to demand political rights to correspond with their new economic power. Indeed, they seek political influence precisely to defend their growing economic interests.

But the transition process is typically messy, with countries zig-zagging between autocracy and democracy over time. If historical patterns hold, China, with its maturing population and growing middle class, should follow the path of Taiwan, Singapore, South Korea and other Asian countries and become more democratic over time. The NIC believes China’s democratization could trigger a massive democratic “wave” in other countries, such as occurred with the Soviet bloc’s collapse.

As part of their effort, the NIC consults various foreign and domestic experts, including by attending meetings in some 20 countries. The NIC analysts found that “China was a key theme in all the discussions.” Some Chinese interlocutors praised recent reforms but lamented persistent corruption  within their society. Indian analysts described China primarily as a rival, but Africans saw China generally as a useful partner. Although nobody expected China to surpass the United States as the leading world military power in the next two decades, and there was a consensus outside China that the United States had to pursue a vital role in Asia to prevent  a security vacuum from arising, everyone agreed that the world’s future critically depended on both countries.

In fact, the NIC’s “most plausible best case” future world (“Fusion”) is one in which China and the United States find an increasingly number of global challenges to cooperate in solving directly and in partnership with other states and multinational institutions. Perhaps for this reason, a supplementary report by the Atlantic Council on what U.S. strategy would best manage the Global Trends 2030 landscape urges the Obama administration to “deepen cooperation with China as the most crucial single factor that will shape the international system in 2030.”

Richard Weitz, Senior Fellow at the Hudson Institute

This article was published by China-US Focus and is reprinted with permission.


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