Why China Surpassing America’s Economy Isn’t a Sure Thing

to you. If you think about the really big changes coming down the track over the next twenty to thirty years, the aging of the global population would be high on anyone's list. It could affect the growth rate of our economy, how much we spend, what we spend it on, the kind of jobs that are needed, could affect pretty much everything in fact. But one consequence that probably hasn't crossed your radar is that nearly one in four women around

the world could be going through the menopause. By Bloomberg Economy reporter Lizzie Burden has looked into the economics of that mildly alarming prospect. You'll hear from her in a few minutes, but first, let's talk about another major chain age we're expecting the global economy to go through. Becoming more Chinese. Betting when exactly China overtakes the US as the world's largest economy is a popular pastime among economists.

Whether that handover will happen doesn't arouse much debate at all, especially not in Beijing, where they've just been celebrating the hundred anniversary of the Chinese Communist Party, and its leaders have been doing their best to present that passing of the battern from the US to China as both imminent and inevitable. The Chinese nation, president shi Jingping said last week is marching towards a great rejuvenation at an unstoppable pace. But is it so unstoppable? Is China really destined to

take over the world in the near future. Well, Bloomberg's chief economist Tom Orlick, friend of Stephanomics, has asked exactly that question in some research with our China economist Eric Schu and come up with some interesting answers. Tom, thanks for joining us again. Tell me about this research before we go on to have a broader debate about it. So China has a lot of things in its favor, Stephanie.

There's one point for billion Chinese people GDP per capita in China is a fraction of the level in the United States, pointing to substantial space for continued development, and China's leaders have a formidable track record on delivering on their development their development objectives. So at one level, it seems like a no brainer that China will inevitably overtake the United States and claim the top spot in the global economic rankings. At the same time, there's a bunch

of vulnerabilities and uncertainties. A shrinking working age population, are stalled reform agenda, an overhang of which raises the possibility of a financial crisis and increasingly the risk of isolation in the global community, slowing the flow of technology and

ideas and innovations which have catalyzed China's development. So what we did in this piece, my colleague Eric Jew and myself is put some numbers around those risks and identify scenarios from a kind of rapid overtake which would see China claiming the top spot at the beginning of the twenty thirties, to stall financial crisis and other misfires which would see China's trapped in a perpetual second place. It did seem and you do you go through? You go

through all of these. There are three factors that seemed like the sort of three components of the positive scenario. The things that China would have to get right would have to turn out China's way for it to overtake the US economy fairly soon. And I guess those three are I guess, first, how the US does relative to China. If US continues to go like gang busses and the next few years, one has to assume it's going to

be a bit harder for China to overtake. And this the second that you also highlight is whether or not the rest of the world makes it easier or harder for China to grow. It's been a very hospitable place the global trading system for most of China's recent development, but we know that that's the tide has been turning on that under President Trump, but also under President Biden. And then I guess the third pieces whether how successfully it reforms its economy and deals with those challenges that

you highlight, the aging population, declining productivity. So I guess maybe just if we could, if we could run through each one of those, I mean, firstly, just the relative performance of the rest of the world. How how much does that figure in the faster scenarios. So there's two areas where the rest of the world can have a big impact on China's development trajectory. The first one is

the US does at home. Biden has a plan for infrastructure, He's got a plan for families, which could significantly increase workforce participation. If these plans turn out to be down payments on a more aggressive development strategy for the United States, we could see the US growing faster than expected over the next ten years twenty years. As you mentioned, a faster growing US would obviously be a harder US for

China to catch up with an overtake. The second area where the U s could have a significant impact on China's trajectory is the sort of set of issues around decoupling. One of the reasons China has grown so fast is because they've been able to tap global markets for technology, for ideas, for innovations. What we're already seeing is the door to global markets for China is starting to swing closed. The US and it's allies are taking a hard look at China. They don't like what they see. They don't

want to support China's development. They certainly don't want to support China's acquisition of strategically important technologies, so they're making that harder. On the Chinese side, there's this kind of laundry list of reforms which are necessary to boost productivity and to offset the demographic drag. So it's critical for China to continuing investing in research and development. It's critical for them to have space for dynamic private sector entrepreneurs.

They would love to see fertility move higher. The one child policy has been a disaster for their demographics and now threatens to crypt size of their working age population. And at the other end of the age spectrum, they need to raise the pension age to keep workers on the job a bit longer. And if you if you sort of pull that together and just trying to kind of crystalli as in our minds, what what difference it makes to the to the sort of in the future

for the ten and twenty year time frame. Obviously, it's like sticking in a figure in the air. You can't necessarily predict the exact year when China is going to overtake the US, not least because we're talking about the nominal value of GDP here. I know there are lots of people listening saying, hang on, China is already overtaken the US. And that's true when it comes to what they call the purchasing power parity basis. So if you're taking too account the fact that things are cheaper in

China than the US, China has already overtaken it. But if we're just looking as you are in this piece, if you're looking at the sort of cash value, the nominal value of its economy relative to the US, what's that if everything goes right, what's the fastest you think it could overtake the US or what's the most the soonest date and what is the impact of those factors progressively going worse for China? Is that is it just that it never overtakes or it just pushed it into

the sort of fifty year time frame. So if everything goes right, Stephanie, if ties with the US remain robust, if China can push forward its domestic reform agenda, if trying to can dodge a financial crisis, if trying as GDP data is indeed credible and gives an accurate read on the size of the economy, then we think they could overtake. If all of those things go wrong, if ties with the US splinter, if domestic reform fails, if trying to faces a financial crisis, if the GDP data

is exaggerated, then China stays in perpetual second place. Okay, so let's let me bring into this conversation the economist and author George Magnus. He's now an associate at the China Center at Oxford University. He's also a former economists for UBS and most importantly for US. He has written extensively about China's economy, including a book in eighteen Red Flax, Why She's China Is in Jeopardy. So George, thanks very

much for joining us. I know that some of these questions that Tom's raised in this research definitely are consistent with questions that you've had about China's development and its future. But when we looked at China last year handling COVID, many people thought, well, hang out. This shows yet again that China is incredibly good at managing very tough challenges and has actually managed to grow in this year where

the rest of the global economy shrank. Are you feeling have you have you changed your view of the of China's prospects as a result of its effective management of COVID or do you think that Tom's right in this

analysis to question it? Well, Step, I mean, I don't think the pandemics really all there's sort of management of the pandemic has really had a material impact on you know, the sort of the fundamental view, because what we're really talking about here, I think, is whether China is going to lapse into or succumb to the middle income trap, under which conditions it's GDP at least certainly per capita terms will never converge with the United States substantially may

converge a bit, but also in which it's the monetary value of its GDP may also, as Tomas indicated or suggested, might permanently stay less than it is in the United States. That the pandemic certainly has had a very significant effect in the way in which people kind of evaluate how

you deal with the pandemic. I mean, if you can impose draconian suppression using public health measures, measures as the Chinese have done, which are not really we've had lockdowns, but not nothing like the kind of measures which the Chinese were able to to bring about, then yeah. I mean, there's an efficiency if you want to, if that's the right word, that you can use about in the way

in which you can deal with such problems. But I don't think that really cuts any ice with opinion, which is really about well, you know, they were very efficient in dealing with it when it was a problem, and the economy turned around much more quickly than anybody's else. But actually, in the wash, we're all going to end up in a comparable place. I mean, sooner or later, you know, we'll all be vaccinated, sooner or later. Lost output will be regained sooner or later, you know, the

pandemic hopefully we'll just be kind of history. But what we'll be left with is why was it all so untransparent? Why didn't we hear here about it? Why did they try to suppress information about it? And and then I think will be the lasting legacy rather than the speed with which they clamped down on on this virus. And you talk about the middle link come trapped, I mean, I guess the other example is not so much a middle income chap but of a of a country that

we predicted would overtake and then didn't. Is Japan, And you could say it was the sort of cautionary tale. Do you think there are any any comparisons there? Do you think there's some of the same weaknesses in China's development that have come through in Japan's case. Yes, In fact, i'd sort of broadened a little bit. I'd say, you know, think about Japan in the nineteen eighties, think about Brazil in the nineteen seventies, the Soviet Union in the fifties

and sixties, even Germany in the nineteen thirties. With hindsight, of course, we all know that these were basket cases, or that they were making terrible errors in their economic and kind of commercial financial policies. But actually, in real time it was genuinely felt kind of concerned that that they would overtake us. So, you know, Kristcheff said in nineteen fifty six, history is on our side, and we

will bury you. I mean, I don't think the Japanese ever said anly think as aggressive as that, as well as far as I can remember, But certainly the Americans were absolutely paranoid that, you know, the Japanese would eat their their commercial and economic lunch and so on and so forth, and these things never happened, and I think the reasons why the why they never actually did happen. I mean, actually often there is six of one, half a dozen the other. Sometimes it's a question of just

a failure of institutions to adapt. Sometimes it's that the boom periods, which we all kind of think are going to go on forever, are founded on much more temporary phenomena than we recognize at the time, like credit or you know, commodity prices in the case of Brazil. I mean, one of my favorite kind of examples nowadays actually is to cite in the case of the Soviet Union, when Gorbachev came to power, we still thought that at that time that you know, Russia was a fort the Soviet

Union was a force. But actually income ahead and consumption per head in the Soviet Union relative to the relative to the United States was actually a bit higher than it is in China today. So you know, China has the income ahead of Malaysia or Russia, but a consumption per head which is flanked by Jamaica and Iraq. Now that's basically there's something fundamentally wrong in the structure of the Chinese economy because they have this very kind of

leninist view about the significance of production supply. Um, there's certainly not the enamored or enlightened view about consumption and service producing industries, which we think are you know, I mean we would say that, wouldn't we, Because in liberal leaning democracy is it's it's our leading edge. It's the main thing that we've got. M But the development model in China, I think everybody agrees, including China's leaders, you know,

does need a makeover. It's just that I think, you know, and I'm impressed often when I hear privately here Chinese officials talking about why it needs it. But I think the problem is that it's politically really really difficult for them to agree the kind of governance changes which would

be necessary for that shift to happen. Tom, your recent book on China actually had a fairly positive take and at least was reminding people how effectively China has been able to deal with this leadership has been able to deal with some pretty big challenges already, and the feeling of your book is that we shouldn't underrate their ability to overcome these challenges. So what would you say back

to George on this? Well, I mean George makes it makes a survey the vast range of economic history and made a number of compelling points, so there's a lot to agree with their. At the same time, I take a different view um when we think about sort of China in international comparison, I think the obvious comparison to make is not with the USSRVE or Brazil in the seventies, or Japan. I think the obvious comparison to make is with Japan and Korea, and indeed Taiwan at an earlier

stage of their development. China is following the East Asian development model, where the state plays a strong guiding role in allocating capital towards achieving development objectives. And we've seen in Korea and Japan and in Taiwan that that development model is a very powerful driver, and in the case of Japan and Korea has lifted those economies pretty close

to US levels of GDP per capita. If we think about where China is right now, significantly behind in terms of GDP per capita, but following broadly the same development model, I didn't see a compelling reason why they wouldn't be able to continue following that trajectory. George, Yes, there is there are similarities, but I think they are less convincing from my point of view than that I think the

way Tom explained and understands it. I mean, the reliance on exports is certainly a genuine comparison, although in China's case, of course, the export orientation of the economy is now and has been since two thousand and eight two thousand nine, now playing second fiddle by a long shot really to investment.

And the first kind of difference then is that the investment share of GDP in China is higher than any of those countries ever achieved, at least perhaps maybe for no more than perhaps they were for a year or two. But China is, I think, taken this kind of investment model to extreme, and it is fine, really difficult to wean itself off it. The second thing is that these countries of the Tiger economies in Japan all indulged in political reform and saw the necessity for institutional and political

change to enable structural change in the economy to take place. Third, differences of the demography, and so when the Tiger economies by and large had China's income per head, they were able to look forward for some time to a continuous rise in the working age population. China can't do that anymore.

It's demography basically turned around in two thousand and twelve, and we know that it will now relentlessly deteriorate, so to speak, until well for the foreseeable future, and then last, but not least, it's the idea about liberalizing economic reform.

We know that from China's past, in the last thirty or forty years, its highest productivity periods where those that were associated with the liberalizing economic reform, which the pragmatic elements of the Communist Party were quite happy to embark on.

And I think my issue really with Tom's suggestion is that in two thousand and twelve everything changed with sech Pain coming to power, and I think that appetite for liberalizing economic reform and pragmatism has basically gone out the window now, I mean to all intents and purposes, and so I don't really have very very high confidence. I think it would be churlish for me to say they

can't do it, because it's a data driven economy. As we all are information driven, We've got new metrics according to which to try to evaluate economic performance. But I think that the departures or the dissimilarities now between contemporary China and the tiger economies in Japan are now much more impressive than the similarities. I would say I'm perplexed the idea that China's investment is a source of weakness. Clearly, China's investment is overdone. There is overcapacity in industry, in

real estate, in infrastructure. At the same time, it's the capacity of the government to a mass funds for investment and then implement that investment in a strategic way. There's actually been the main lever for lifting China from a backwards agrarian economy at the end of the nineteen seventies to a middle income economy today. So I would actually put strong investment in the kind of success part of the equation rather than the failure part of the equation.

On the idea that there's been a kind of a radical shift or a failure in China from twenty twelve on, well, I certainly agree that China has moved on to a different trajectory from twenty twelve on. But the idea that there's been a kind of a wholesale failure of economic management or financial management or reform I don't actually agree with.

If we think about the period from twelve on, We've had the completion of interest rate liberalization, the completion of exchange rate liberalization, the supply side reform agenda, which closed down significant amounts of over capacity and industry and dealt with over capacity in real estate. And we've had the rise of tech giants like ten Cents, Ali Baba and

ma Juan. So certainly China is diverging from a kind of Western Washington consensus path over the course of the last decade, but it's trying to kind of failing in a kind of economic governance sense. I would I would

not agree with that assessment. We're going to get come to an end, but I wanted I'm interested hearing both of you whether you think ultimately the biggest threat to China's future supremaci if you like, is going to be inside or outside its borders, Because clearly, as George has just said, the leadership has changed and has perhaps become more authoritarian and certainly more more into centralized control over the last few years, and that one could say, does

pose a threat to the ability to reform in the future. And the world has become a less suspitable place. So I just wondered, I mean, maybe you first tom which you think is ultimately the bigger threat outside or inside? Um, there are risks in both directions, but I think we probably overstate China's kind of dependence or risk from foreign forces. I think probably China's own government kind of pays too

much attention to that. I think China's biggest policy failings, from the Great Leap forward to the Cultural Revolution, to the one child policy which is now hammering their demographic trajectory, those biggest reformed failings have all come from close to home, and I think that's where the biggest risks are going forward as well. George last word, Yeah, I think I

think we agree on that at least. I mean, I think the external of our environment is going to be a factor, which it has not been since the nineteen fifties and nineteen sixties. I mean, China does still have huge dependency on semiconductors. You, I mean, how do you have advanced technologies in the twenties and the twenty thirties if you are so far behind in terms of advanced

and high end semiconductors and integrated circuits. And I think you know, the United States and liberal leaning democracies are going to make it harder for China to compete in these areas. And I think that is a factor which we can't really quantify. But I do agree that to the extent that there's a threat to China's you know, GDP trajectory, it's middle income UH status and so on and and so forth. I think it is internal, and I

think it's for the very recent time just denied. I mean, I don't really see any evidence of I mean, I see evidence of change, and I see evidence that inciging pink government are trying to do things that are important in terms of reducing inequality and maintaining employment and all these kinds of things. But actually I think they keep on running up against a brick wall actually, and it's

not really being very successful. So these are the early days I think of governance weakness and how totalitarian governance systems basically failed to deal with fundamental economic problems. I just think they're going to get worse. So internally, I think the biggest threat lies there. Yeah, George Magmas, tom Alick, thank you very much. Now, the menopause doesn't get talked about much in polite company, or even in impolite company

for that matter. But women of a certain age are leaving the workforce in rising numbers just when we might have wanted older women to make a bigger contribution. That's le some senior business leaders to say we need to break that to boo and start talking about what the menopause means for women and for the economy. Here's Lizzie Burden.

It's not every day that a foot see one hundred boss tells you about her nightly hot flashes, but for forty five year old Live Garfield, chief executive of British water services provider seven Trent, sharing her own experience is an important way of breaking down stigma around menopause in the workplace. I think we've got to be open about it and not make it to boo, and not be

embarrassed about it, and be really clear. If you have out of rubbish night seat because of it, then share that experience because there'll be lots of other women going through exactly the same thing as me each and every day. About a quarter of the world's female population will be menopausal by twenty thirty. However, many will suffer in silence, feeling uncomfortable disclosing symptoms to a male or younger manager,

and unlike pregnancy, menopause isn't commonplace in HR policy. Symptoms negatively affect three and five women at work, according to research by the London based c i p D the Charted Institute of Personnel and Development. They can include hot flashes, night sweats, loss of sleep and mood swings leading to embarrassing episodes in front of colleagues, reduced ability to concentrate, and erratic behavior. Some women will have no issues. For others,

menopause can be debilitating. Scores of women will even leave the workforce. A survey by healthcare group Booper reckoned almost a million UK women had quit their jobs because of menopausal symptoms. This has an economic cost. I spoke to Open University professor Joe brewis one of the authors of a seventeen UK government report on the issue. She notes that the biggest gap in gender pay in the UK

is between men and women in their fifties. There's very strong evidence that that widening at that particular point is because women are leaving work and best guesses a lot of that will will have to do with menopause and then that that gender pay gap, the fact that it's so big between men and women in their fifties, also feeds into a gender pension gap um later in life,

which at the moment is in excess of Globally. Consulting firm Frost and Sullivan estimates that menopause related productivity losses added to associated healthcare costs amount to more than eight and ten billion dollars a year. Some companies are taking action back to live Garfield at seven Trent where we

introduced menopause training for all managers. We went right across the workforce and talks about what would make it feel a bit less awkward to talk about, and we kind of realized that if you bring them up at least once a week, then it becomes less to be So since then what we've done is realized that you need this almost like adjustment passport. So just again almost like a like a miniability to contractor your line manager to

say this is the help that I need. I asked the c I p D S. Rachel suff what practical steps this could involve. Fransic could be as simple as having fans open the window, having good ventilation, good good access to washrooms, allowing people to take comfort breaks whenever they need them. Flexibility is really important as well. Garfield says the benefits go beyond the financial. So I think the best organizations are made up of diversity, whether it's

diversity of age, of thought, and of experience. To miss to not employ swathes of women in their forty five to sixties has got to be a relation, hasn't it, because otherwise you're missing all of that insight from that particular generational category. Deborah Garlic, founder of hen Picked Menopause in the Workplace, which was training on the issue, says change is underway. The UK is ahead of the rest of the world. We believe. We know that. From a standing start of a fat years ago when there was

absolutely nothing in the UK, we've made great progress. Menopause has even landed on the bank of England's radar. Governor Andrew Bailey said in April that although previously not considered part of the world of work, menopause can no longer be ignored. Still, the pandemic and successive lockdowns have kicked menopause down the agenda at many corporations, while also creating

some new challenges for female workers. For some women, working from home has enabled them to manage their symptoms better. For others, the uncertainty has exacerbated the psychological side. In female dominated public facing roles. Brewis says, those suffering hot flashes have faced an added burden, but also because of the very poor supply of PPU, very often women were having to wear PPU that didn't fit them, so drowning

in math head coverings that are designed for men. Economically researched by the Resolution Foundation shows the pandemics had a worse impact on older working women than any other major crisis since the nighties. But Garfield is hopeful. So there's no doubt that for some sectors it is a game of survival and that they the best thing they can do right now to look after their workforce is to get their business back up and running and able to jobs. So that's fair when you're in that mode. There were

some sectors. I think there are other sectors which the power of people has become their greatest asset, And this is around protecting people, isn't it? Which is there your greatest asset? This is the opportunity to truly push onto another gear. So that's it for this episode of Stephanomics. Tom Orlip will be in the chair next week while I take a week off. In the meantime, please rate the program and follow as Economics on Twitter for more

news and analysis from Bloomberg Economics. This episode was produced by Magnus Hendrickson, with special thanks to Tom Olick, George Magnus, and Lizzie Burnon. Mike Sasso is executive producer of Stephanomics, and the head of Bloomberg Podcast is Francesca Levy. M