A $123 Trillion China? Not Likely.

The many, many reasons -- from the financial crisis to the country's aging population to environmental limitations -- why Robert Fogel's forecast for China is completely inconceivable. 

In his bombshell of a projection that China will produce $123 trillion in economic output by 2040, Robert Fogel conveniently dismisses any number of problems that threaten China's economic development, from environmental degradation to stalled political and economic reforms, by arguing that "Beijing has proven quite adept in tackling problems it has set out to address."

Past success is no guarantee of future results, and Fogel sets his entire analysis -- which implies an average annual growth rate of about 10.8 percent a year for more than 30 years -- on that shaky assumption, entirely overestimating the Chinese government's omniscience and its ability to overcome the country's enormous political, economic, and environmental challenges.

These problems on almost every level will prove far more threatening than Fogel suggests. First, the financial crisis has stalled the process of economic liberalization in China and strengthened the state's role in market outcomes. Over time, this will certainly create a range of inefficiencies that hinder future growth. Beijing's stimulus response -- originally deployed last year to compensate for the fallout in global demand for Chinese exports -- will probably have permanent repercussions. Already, industry revitalization and consolidation programs, coupled with a massive influx of easy credit, are stifling the private sector (aside from real estate, which could present its own downside growth risk) and encouraging production overcapacities in state-controlled, export-intensive, heavy industries like steel and cement. The Chinese renminbi's steadfast dollar peg since mid-2008 is giving even more incentive for export firms to over produce, which will inevitably perpetuate a reliance for growth on exports to consumers in America, Europe, and Japan -- with all the risks that come with that dependency.

The leadership now looks less willing than it has in decades to abandon its economic control. Beijing won't soon forget that China's restricted system allowed the government to quickly mobilize fiscal and credit resources to rescue growth and prevent social instability in the face of serious economic crisis. Meanwhile, the more liberalized U.S. economy, once a model for China, remains burdened with surging debt and double-digit unemployment. The free market has lost a bit of its luster.

This heavier reliance on a state-led approach will doubly skew China's growth potential by dampening innovation and reducing the returns expected on sizable education investments. It will be enormously difficult for China to move beyond manufacturing to become an innovator without genuine reform of a political and economic system that stifles individual expression and creativity and directs massive human and financial resources toward less-innovative, state-owned firms. Fogel's expectations for education's growth contribution, based on education and productivity data in the United States, may not fully transmit to China. After all, China's top college graduates are actively seeking jobs in either government or state-owned firms, for higher salaries and job security. That's good for the bureaucracy, but not so good for innovation and entrepreneurialism.

Fogel warns that Europe faces some serious demographic challenges. True enough, but as Fogel only briefly acknowledges, China has an aging population of its own to reckon with. Chinese statistics show that the country's birthrate fell 42 percent from 1990 to 2007, and government projections suggest that by 2025, nearly a quarter of China's population will have celebrated its 60th birthday. Not surprisingly, Beijing is already considering ways to strengthen the country's inadequate social safety net, but this process carries its own policy risks and the country's fragmented pension system won't be fixed so easily. Local governments that operate their own social security funds will resist a push to centralize the effort, and the amount of capital needed from the central government to make benefits meaningful will meet fierce resistance from deficit hawks within China's Finance Ministry. If the leadership falls short in caring for the elderly (efforts to date have certainly been inadequate) this population will present a much larger than expected drag on economic growth.

But the most important reason why we won't see 1.4 billion Chinese earning an average of $85,000 per year is simply that the Earth can't sustain such rapid growth. Today, just 4 percent of China's people own their own automobile. Now multiply that number by 20 and imagine the environmental stresses China would have to manage as a result of such an increase -- not to mention the impact of price spikes for the traditional resources that will remain principal components in the energy mix for at least the next 20 years. Fogel's forecast seriously underestimates these problems.

The biggest environmental challenge for China's leadership will be in securing enough water to keep the economy afloat. Fogel predicts that the agricultural sector, China's heaviest water consumer by far, will remain an "underappreciated economic engine" for growth. But Beijing already faces water scarcity, and industrial growth plus urbanization will mean increasing demand on China's already-inadequate water resources. The Water Resources Group, coordinated by McKinsey & Company, recently forecast that without significant policy changes, China will face a 25 percent supply gap for expected water demand by 2030. This is an expectation of what will happen, not an outside possibility.

Beijing's capacity to cope with the complex issues tied to continued growth is anything but assured. It will face insurmountable difficulties, for example, in forcing local-level bureaucracies and companies to adhere to central-level environmental and economic policies. History suggests a far more pessimistic outlook: Despite the 20 years that have passed since Beijing mandated that local governments incorporate water environmental protection into their production and construction plans, and the numerous iterations of that policy since, China's Ministry of Environmental Protection's own data clearly shows a more than 34 percent increase in wastewater emission from 2000 to 2007 alone (a primary driver of water pollution). Nearly two-thirds of the population now believes that water pollution is China's most pressing environmental threat.

Is the world ready for the China that Fogel describes? A better question: Is China?



Muslims and the Caliphate

A top representative of the Islamist organization Hizb ut-Tahrir responds to FP's Christian Caryl.

Abdul Wahid, chairman of the UK Executive Committee of Hizb ut-Tahrir, writes in to take issue with Christian Caryl's Dec. 22 column, "Reality Check: The Party's Not Over":

This article raises some pertinent questions but also repeats many inaccuracies.  

As was rightly said, our organisation has grown in number, strength and influence over 60 years with a clear purpose, never deviating from its intellectual and political method. Our ideas have become more detailed and refined over the decades. In the past 12 months alone Hizb ut-Tahrir has presented work on the Global Financial Crisis and Islam's alternative economic model; in Denmark we published a paper on the Copenhagen Summit on climate change; in Indonesia we gathered 6,000 international Islamic scholars in the summer of 2009 following their 2007 conference that had over 100,000 attendees. These examples (and many others) render the comparisons people make with others as misplaced.

Over the decades, the Muslim world has moved from a skeptical view of our goal (to revive Islam as its basis for political life and re-establish the Caliphate) to one that enjoys support levels in excess of 70 percent of the population according to some polls.

This increasing level of support for Islam's political ideas -- in particular the Caliphate -- illustrates the real questions that should be asked in the West. That is, how the West can understand and dialogue with this viewpoint? It is a shame the article chose not to address this.

Our model offers the Muslim world much needed stability; whereas the policies of Britain, the United States, and their allies are the cause and actively perpetuates the chaos and instability. Hizb ut-Tahrir is influenced by Islam alone; our weapons are nothing except ideas and words; our goal is liberation of the Muslim world from colonialism and the restoration of the Caliphate so that people can live in security and under justice; and we sincerely believe the support for this aim will grow ever stronger.

Christian Caryl responds:

Mr. Wahid's assertion that the majority of Muslims automatically concur with the goals of his party is an intriguing one. Yes, the poll he cites does indeed show majority support for the idea of restoring the Caliphate. Yet I wonder how many of the same respondents would agree with this if they were asked at the same time whether they would be willing to do so if it meant surrendering the national sovereignty of the countries in which they live today. I suspect that many of them would then decline the offer. The same poll cited by Mr. Wahid also shows that "67 percent of those surveyed agree that 'a democratic political system' is a good way to govern their country and 82 percent agree that in their country 'people of any religion should be free to worship according to their own beliefs'" -- both principles that would hardly apply under the terms of the global Islamic state that Mr. Wahid's party has in mind. (His party consistently assails the notion of representative democracy, for example.)

In short, I don't doubt that most Muslims around the world would like to see a greater role for Islamic values in many of their societies. Nor do I believe that most Muslims approve of armed intervention in their affairs by the countries of the West. But I certainly don't think that any of this means that Hizb ut-Tahrir would automatically win all their votes in a free election, or that they have somehow chosen it to act as a mediator between them and existing governments around the world. And it means even less that democratic societies, in the West or elsewhere, should necessarily treat Mr. Wahid's party as a legitimate interlocutor. A self-respecting democratic society must respect all religions; this does not mean that it should make life easy for religious ideologies that aim at its demise.

Daniel Berehulak/Getty Images