The Bear’s Lair: Moving into a Chinese-Indian world

The IMF has allowed the Chinese renminbi to become part of its Special Drawing Right from next October, with a weighting of 10.92%, the third largest after the dollar and the euro. China and India are both now growing much faster than the West, and their greater populations mean that their output will overwhelm the West’s well before 2100. Their brutal realism about international economic relations, so similar to the attitudes of Britain in 1815 and the United States in 1915, will ensure their success. Just as the 19th Century belonged to Britain and the 20th Century to the United States; so the 21st Century will belong to them – with no other obvious claimant to the 22nd.

China and India’s superior realism has been well demonstrated at the Paris global warming conference. While Western states make commitments to cut carbon emissions, and in some cases such as Germany impose major costs on themselves, China and India do nothing of the sort. China has undertaken to stop increasing its emissions by 2030, probably reckoning that any commitment made now will be long forgotten by then. India is planning to double its coal production by 2020 to increase its electricity consumption, and its chief economic advisor has accused the West of “carbon imperialism” in trying to prevent developing countries from increasing their carbon usage, pointing out that even though India has four times the United States’ population, the United States still produces 35% more coal.

China and India’s assertiveness, in both economic and geopolitical spheres, is reminiscent not of the hesitant Britain and United States of today, but of their activities in the period when they were rising to global hegemony, around 1815 and 1915 respectively. Around 1815, Britain claimed the right to seize neutral merchant ships, prevent them from trading with France, and collect any British citizens who might be serving on them; its effective closure of U.S. trade through the 1807 Orders in Council was the main cause of the War of 1812. Around 1915 the United States maintained massive protective tariffs against the world’s trade, far higher than others’ (and infinitely higher than those of the foolish free-trading Britain.) It also built the Panama Canal and invaded Mexico and Haiti, asserting its rights in the Western Hemisphere much as Vladimir Putin does in neighboring countries today.

India follows the relatively benign model of Britain 1815 and U.S. 1915 fairly closely; indeed it is not yet quite as assertive in foreign policy as was either previous emerging hegemon. China on the other hand is in many respects more like the Kaiser’s Germany, claiming disputed areas of ocean by building artificial islands thereon and building a navy that like the Kaiser’s High Seas Fleet can be aimed at only one other power, the existing hegemon.

Economically, the case for China and India’s emergence is rock solid. According to figures by PriceWaterhouse Coopers earlier this year, which assume conservatively a considerable slowing in Chinese and Indian growth after 2020, by 2050 China will have a GDP of $61 trillion to the U.S. $41 trillion, while India with GDP of $42 trillion will also have surpassed the United States to become the world’s second largest economic power (PwC does not give directly an estimate for the EU as a whole, but from the text we can estimate it to remain somewhere behind the United States in 2050.) Of individual countries in 2050, the fourth is Indonesia, with a GDP about 30% of the United States and double that of the largest European country, Germany.

In practice, PwC’s estimates are likely to be too conservative; certainly its estimate of 1.8% per capita growth for the U.S. between now and 2050 is higher than has been achieved in the “recovery” from the 2008-9 debacle and would require better economic policies to be pursued, while its estimates of 4.2% per capita growth for India and 3.4% for China both look rather low.

That is not to say China and India will be as rich as the United States in per capita terms by 2050, even if they grow faster than PwC estimates. Nevertheless they will be considerably richer than they are currently, India far richer, and with total GDPs larger than the United States they will be able to project force more effectively than will the United States, even with the help of its NATO allies. Russia, fading from sixth place in GDP (on a purchasing power parity basis) in 2014 to eighth place in 2050, less than one tenth the size of China, will also be a declining force internationally, even if it has managed to annex a few neighboring economic basket cases.

Looking beyond 2050, it is difficult to see what might dislodge China and India from their hegemony. In terms of population, they are several times the size of the next largest country, and will remain so, increasing their geopolitical clout accordingly. They will still be much poorer than the United States in 2050, so will presumably enjoy some further catch-up in terms of wealth and living standards (and hence increase their lead in terms of raw GDP.)

It is possible of course that other countries may combine, in much the same way as the EU has attempted so painfully to do. India’s 2100 population is projected as 1,600 million by the United Nations and China’s at 1,000 million, compared with a mere 450 million for the United States. However Nigeria’s population is projected as 752 million in 2100 and Africa’s population as a whole is projected as close to 4 billion, since fertility rates will remain much higher there than in other regions throughout the 21st century. The world’s population overall is now projected in 2100 to be a grossly overcrowded 11.2 billion, with China and India together representing only 23% of the total compared with today’s 31%, thus being theoretically vulnerable to a new competitor.

An African federation, if one could be formed, would have four times China’s population and 2½ times India’s in 2100, and might have approached those much richer countries in terms of total GDP, while remaining much poorer per capita. That would suggest that the 22nd Century might well belong to such a federation, if it came into existence. However given the difficulties that have been faced by the European Union, most of whose states share a common history and culture, if not language, it seems very unlikely that Africa’s 54 countries will be able to form themselves into a federation tight enough to act as one superpower. It is of course possible that a subgroup of those countries may do so. However it would probably then lag China and India in terms of GDP, even if not in population. In any case, if there is to be another geopolitical transition taking place after 2100, it will be for China and India to worry about, not for us inhabitants of what will then be second-class powers.

In general, we can anticipate a transition to Chinese/Indian hegemony philosophically, if not without regret. The main difficulty will be that of having two hegemons, whose emergence will not be simultaneous – China is emerging already, whereas India requires another 20-30 years before its economic clout is sufficient to bring top-level geopolitical power with it. This staggered emergence clearly has the potential for conflict, which with today’s technology could greatly damage the rest of us. Transition between hegemons does not have to result in war – Britain handed over peacefully to the United States – but it brings risks higher than in periods of hegemonic stability.

Politically, both China and India are at present reasonably benign, much more so than the 20th Century Soviet Union. Yet there is a worry about China’s continuous devotion to the memory of one of history’s greatest monsters, Mao Zedong. It’s as if Angela Merkel insisted on appearing at EU meetings surrounded by swastikas; as it would in that case it makes one worry about the benignity of the current Chinese regime.

Yet we must remember that China has a history of global hegemony. A Chinese regime that harked back, not to the loathsome Mao, nor to the inward-looking, progress-averse Ming and Qing dynasties but to the pacific, intellectually-driven, artistically glorious and technologically adventurous Song would be a hegemon we could all admire. Balance that with a democratic cricket-playing India, and you have a world different from but not greatly inferior to the Pax Americana we imagined we had entered in the long-distant days of the 1990s, after Communism fell.

The next 20 years are thus critical ones. We must encourage the opening of China, both politically and economically (as an SDR member, there should be no backsliding on allowing full exchange control freedom to its domestic citizenry, for example.) We must also encourage the advances of India, making sure than it is admitted to the geopolitical top table as soon as its economic development allows. Most important of all, we must cease hobbling our own transition to a prosperous if geopolitically subordinate position by destructive environmental fantasies of hyper-regulation and state control.

(The Bear’s Lair is a weekly column that is intended to appear each Monday, an appropriately gloomy day of the week. Its rationale is that the proportion of “sell” recommendations put out by Wall Street houses remains far below that of “buy” recommendations. Accordingly, investors have an excess of positive information and very little negative information. The column thus takes the ursine view of life and the market, in the hope that it may be usefully different from what investors see elsewhere.)