“Peak China” and the Likelihood of War

Whither the Economic Engine of China?

Last week, Roger covered the economic angle of the “peak China” debate. But this story has an added aspect to it that goes beyond macroeconomics. The key questions we’re asking ourselves are: If China is at or has already passed its economic peak, is it more or less likely to initiate a war of aggressive territorial expansion, like an invasion of Taiwan? Is a “wounded China” more dangerous?

First, let’s turn to the macroeconomic argument for why we may be approaching “peak China”.

• While developing economies will many times see unprecedented levels of growth over many years (perhaps even decades) after loosening state controls, the normal model of economic development tends to see growth rates of developing economies level off over time, with growth only increasing past this point at an incremental (even if positive) rate.

• For many analysts, the conventional wisdom was that China’s dynamic growth would continue at rates well above other established and mature economies. With this dynamic growth came the potential to overtake the United States as the dominant economic power globally, and eventually militarily, especially in the Western Pacific.

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