Yes, China will overtake the US but its economic growth will stop eventually. Here’s why

There are three great weaknesses in the Chinese economy. Two it is aware of, but the third is unspoken – and will be its undoing

Xi Jinping is right. He declared yesterday, at the rally celebrating the 70th anniversary of the founding of the People’s Republic of China, that “no force can shake the status of this great nation”.

If you take as status that China will, in about 10 years’ time, become the world’s largest economy it is hard to see any set of circumstances that will stop that happening. If things go really wrong for China, then this could take a few more years than that. But it is going to happen in the foreseeable future, so the rest of us had better get used to it.

We had better get used to the idea that if the world’s largest economy is China (and the third largest after the US as number two is India) that many of the west’s ideas of how societies should operate will be challenged. There will be a parallel with the influence of Russia on the west during the Cold War, when some people felt that the Russian model was superior to that of the US and European ones. The Russian economy collapsed and its empire in eastern Europe with it. It was, in any case, always smaller than that of the US – but China won’t be.

Not only will its economy be larger than the US – and much larger than Europe’s too – but it will be home to the greatest number of middle class people on earth. Their ideas will, to some extent at least, shape how we think. If that seems far-fetched, note how American ideas about society have continued to influence Europe. An obvious example of that is the creation of a Supreme Court in the UK, and the way its role is now evolving.

There will naturally be limits to the influence of China, just as there are limits to the influence of America. If a policy works badly, it will not be imitated (look to US healthcare funding for an example of that). But size matters and the limits to Chinese influence will be determined by the limits of its economic performance.

What might hold that back? There are three broad weaknesses in the Chinese economy: the environment, ageing, and a lack of true innovation.

The first two are widely acknowledged within China. The economy is vulnerable to water shortages, to air pollution, and other local challenges. Climate change would – indeed, will – hit China particularly hard. The issue is one of scale. Is the country’s scooping up of global resources just a matter of, as someone said to me, China being “a hungry teenager” needing a lot of food to fuel its growth? Or has it created an inherently resource-heavy economic system? A bit of both, but either way environmental troubles will increasingly limit growth.

So, too, will its demography. Thanks in part to its one-child policy, the country is ageing fast. Soon its population will start to decline. One suggestion is that this may happen as soon as 2023. This will affect its economic growth, for a declining and ageing population will need to divert more resources (and people) into healthcare, and less into construction, manufacturing, investment and all the other sectors of the economy.

It will also affect social attitudes for, as we have seen in Japan, ageing societies tend to turn inwards. They look to create a calm and comfortable life for their people, rather than wanting to conquer the world – or, at least, the world economy. Japan now is utterly different from the boom years up to 1990. This last point, the way demography shapes social attitudes, is less appreciated in China but will, I suspect, become increasingly evident.

Less appreciated still (actually, robustly denied) is the third thing that will hold China back: its lack of true innovation.

This is controversial. Most people would accept that, in the early stages of China’s economic take-off, it achieved rapid growth by copying others, just as Japan did in the early post-war years. But people now point to the numbers of patents being filed in China, the doctorates in scientific subjects, the domination of booming industrial sectors, such as electric cars, to argue that China is forging ahead. There is an argument, for example, that China is now ahead of the US in artificial intelligence research.

China does have an advantage over the west in being less squeamish about matters such as face recognition and the use of AI in surveillance. Most people in Europe and America would say that is a price worth paying, but China has an advantage there nonetheless. But I don’t think there is, as yet, evidence that China is far ahead. The traditions of academic freedom in the west should, I suggest, enable it to hold its lead. Chinese universities are getting better, but still lag. In the QS university rankings, the US has five institutions inside the top 10, the UK four, and Switzerland one. China has none. (The top university in the European Union, aside from the UK, is Delft in the Netherlands, at number 50 – but that is a separate concern.)

If China cannot become a genuine innovator, rather than a follower, it will be hard to push forward from being a middle-income country to a truly advanced one.

I accept no external force can hold China back, but it can hold itself back – and may do so yet.