Why Does China Downplay Its Economic Might?

Ali Wyne

May 6, 2014

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According to the summary of a forthcoming report by the World Bank’s International Comparison Program, China’s gross domestic product (GDP) will overtake America’s in terms of purchasing power parity this year—five years earlier than had been projected. The announcement has predictably renewed three lines of discussion, the first of which runs counter to the other two:

· America’s relative decline is accelerating. There should no longer be any doubt that this century belongs to Asia, and especially to China.

· It is more accurate to measure aggregate economic size at market exchange rates.

· While GDP tends to capture the headlines, it is only one component of economic power. Considering metrics such as per-capita GDP, the centrality of the dollar in global financial markets, and the share of the world’s most innovative companies, America’s economy will remain stronger than China’s for decades to come.

The most interesting aspect of the World Bank’s announcement, however, has been China’s reaction. The Financial Times reports that “China fought for a year to undermine new data showing it is poised to usurp the U.S. as the world’s biggest economy in 2014.” While perhaps more pronounced, this behavior is in keeping with China’s reaction to previous economic milestones.

In January 2010, for example, when data confirmed that China had eclipsed Germany the previous year as the world’s largest exporter, a researcher with the State Council’s Development Research Center (DRC) observed that “in terms of the structure of exports, technological innovation, and industry competitiveness, China is far from being eligible for the title of ‘trade power’.”

In July 2010, when the International Energy Agency calculated that China had overtaken the U.S. as the world’s largest energy consumer, a spokesman for China’s National Energy Administration countered that “[b]y our calculation, the U.S. was still the world's largest energy user in 2009.”

Later that year, when data revealed that China’s second-quarter GDP was slightly larger than Japan’s, the China Daily argued that “a large GDP figure, impressive as it is, bears little importance in practical terms.” It urged China’s leaders not to “be intoxicated by big numbers.” 

In late 2012 the U.S. National Intelligence Council reported in Global Trends 2030that China’s economy would likely surpass America’s shortly before 2030—a conclusion that received widespread media coverage across the world. According to the report authors, however, “Chinese interlocutors stressed that it would take decades for China to catch up to the U.S.: China will not be the United States’s ‘peer competitor’ in 2030.”

In February 2013, when the U.S. Commerce Department calculated that China had overtaken the U.S. as the world’s largest trading country, the Chinese Commerce Ministry claimed that China’s combined imports and exports were $15.64 billion less than America’s in 2012 (indicative of how intent the Ministry was on showing that the U.S. was still the world’s largest trading country, this differential is only 0.4% of what China claimed that its trade volume was that year).

Given the growing confidence of the Chinese people in their country’s prospects—embodied in Xi Jinping’s desire to achieve “the great rejuvenation of the Chinese nation”—why does China consistently minimize the economic milestones that it achieves? For those who discern deception rather than prudence in Deng Xiaoping’s famous dictum “tao guang yang hui”—occasionally rendered as “conceal our ambitions and hide our claws”—the answer is clear: to minimize suspicion of and resistance to its rise, China deliberately downplays its economic heft and the pace at which it is growing, on the one hand, and exaggerates its internal challenges and the toll that they are exacting, on the other.

But one need not be naïve to appreciate the enormity of those challenges, including:

· Handling the influx of 250 million people who are projected to move into China’s cities by 2025;

· Sustaining productivity given that the ratio between China’s working-age and elderly populations, 15:100 in 2010, is set to reach 36:100 by 2035;

· Reducing the costs of environmental degradation and resource depletion, which, according to a joint report by the World Bank and the Chinese DRC, “are estimated to approach 10 percent of [China’s] GDP”;

· Transitioning to a more consumption-oriented growth model in face of powerful opposition from state-owned enterprises; and...

· Preserving the authority of the Communist Party as China’s burgeoning middle class demands a greater say in the country’s governance;

Now add to this inventory the demands that China is likely to face when its economy overtakes America’s. True, a large fraction of its population will still be poor; it will not even be a fourth as prosperous as the U.S. in per-capita terms. Even so, it will find it difficult to continue classifying itself as both an impoverished country and a great power. China is already an “upper middle income” country according to World Bank classifications, and because its economy is growing much faster than its population, it could plausibly become a “high income” one well before the middle of the century. As its attempted duality becomes less credible, it will face greater pressure to lead the world’s efforts in mitigating climate change and systemic financial risk—leadership that, it has argued, the U.S. is chiefly responsible for exercising.

With new demands will also come more intense questioning. While it is not surprising that a rising power would adopt more expansive interests—which, in turn, would require greater military capabilities to safeguard—China will likely be pressured to explain its military modernization in greater detail. Its foreign-policy orientation and long-term strategic objectives will similarly come under greater scrutiny. With its relationships with most of its neighbors continuing to deteriorate, China is struggling to achieve a “peaceful rise” in its backyard. There is also a vigorous debate within the leadership over whether it should ultimately seek to displace the U.S., simply strive for parity, or complete its internal modernization before it contemplates a serious challenge to U.S. preeminence. 

In short, China has an enormous amount of work to do to stabilize its internal situation and nurture a more amicable external environment. It may well be an “incomplete superpower” (Financial Times), a “premature superpower” (Martin Wolf), and a “partial power” (David Shambaugh). But as the world’s largest economy, China will, fairly or not, be expected to debut as a full superpower—one the benefits from and contributes to international order in equal measure. It will have far less time to rehearse than it had hoped.

Ali Wyne is a contributing analyst at Wikistrat and a coauthor of Lee Kuan Yew: The Grand Master’s Insights on China, the United States, and the World (2013).