Ray Dalio recently published a shorter, 5-minute version of his “Changing World Order” talk on YouTube. While there is a great deal of truth and historical analysis in his work, he does seem to have a bias towards being positive of China’s future and negative of the United States.
He also conveniently ignores the exceptions, times when rising powers failed to overtake the established power, despite many projections that it was an inevitability. The most relevant example is that of Japan. After World War II, they experience extremely fast growth in their economy and captured a large proportion of the global manufacturing base. However, experiencing fast over slow and steady growth maybe have actually worked against them as it was part of what formed their debt and asset bubble, leading to a lost decade and stagnating economy, and contributing to a decline in their demographics.
China and Japan share many similar attributes which, along with other attributes, may mean that China is not in the same position the USA was when it stood ready to take over from the United Kingdom as the world’s reserve currency and global hegemon.
- Like Japan, China has a debt and real estate bubble worse than the current global hegemon, so is not in a position to grow larger than the US. China’s real estate debt is higher than the USA’s before the GFC, on a smaller overall economy.
- Like Japan, China doesn’t have the food, energy, and natural resources of a country like the US, or even the UK, whose large coal reserves were pivotal to it being the first to experience the industrial revolution.
- Japan was one of the few Asian nations to escape the middle-income trap, and households did manage to build wealth and savings from economic growth. China has become old before it became rich, and its authoritarian communist government has not permitted the vast majority of its citizens to accumulate wealth and is desperately afraid of capital and labor flight.
On demographics, they are actually even worse than Japan due to several factors:
- Like Japan, China has a Confucius-based culture beneath its communist overlay. Those ideas and traditions lead to a rigid meritocratic society that incentivizes parents to favor having only one child, and maximizing their education.
- The more rapid the industrialization of a nation, the shorter the period of time over which migration from rural areas to cities occurs. This causes fertility rates to drop off much quicker, as there is less of a residual rural population, which tends to have more children than in urban areas. Germany industrialized faster than the UK, and has worse demographics. Japan industrialized even faster, and aged faster than Germany. China industrialize even faster still.
- The UK and US were both strong immigration countries, Japan and China are relatively closed cultures and experience little immigration.
- On top of this China has had it’s one-child policy, an overreaction of the authoritarian government to the less well-known child promotion policy, a misguided antidote to the threat of nuclear war.
It could be that the change in the world order is from a global one to a regional one, however, that may arguably strengthen the US in its position, as they do not require the rules-based global order to maintain long supply chains. Chinas has been the greatest benefiter of globalisation, and the US has sacrificed is better geography and manufacturing competitiveness, to allow the rest of the world to become developed.