Testimony before the U.S.-China Economic and Security Review Commission
Hearing on China’s Military Modernization and its Implications for the United States
30 January 2014 
Prof. Andrew S. Erickson, Ph.D., Naval War College
...These factors may 
now be sending China along the “S-curve” faster than any other major power has gone before. Any 
relaxation of the one child policy is probably too little, too late for averting demographic slowdown
. A 
new Chinese Academy of Social Sciences report projects that by 2030, China will have world’s highest 
proportion of people over 65, higher than even Japan.6
China is already approaching a labor shortage 
economy. A 2012 OECD report even forecasts that India and Indonesia will surpass China’s growth rate 
by 2020.7
China may thus be further along the S-curve than many realize. 
 
Can China achieve an economic rebalance to avoid the “middle-income trap” that typically plagues 
developing economies before S-curve factors develop overwhelming momentum of their own? It seems 
unlikely that the leadership’s goal of transitioning to a domestic consumption-based economy sufficient 
to support a new growth model can be achieved. A true transition from government investment and 
manufacturing toward an innovative service economy would require reforms that vested interests—
unusually potent given rapid resource-intensive development within a closed political system—are 
likely to block. Leaders are likely to view breaking this policy logjam as too politically risky, too close 
to home. The heart of the problem is that China’s leaders know what they need to do from an economic 
standpoint, but cannot do it fully because this would undermine their authority. Faced with this dilemma, 
short-term stability to preserve existing power structures seems poised to prevail. Even the vigorous Xi 
Jinping is likely to muddle through some of the most difficult areas, leaving insufficient progress before 
S-curve slowdown factors become increasingly limiting. 
Moreover, even if implemented with the greatest success conceivable, some of the key reforms that Xi is 
proposing—and many of those most likely to garner popular support sufficient for their successful 
implementation—can themselves strengthen potent S-curve headwinds, and will even accelerate and 
deepen their impact. Some challenges stem from societal patterns that the U.S. and other Western 
nations are already suffering from, and which even China cannot escape—and may well narrow the gap 
quickly, before China is well-prepared. 
An aging society with rising expectations, burdened with rates of 
chronic diseases exacerbated by sedentary lifestyles, will probably divert spending from both military 
development and the economic growth that sustains it. Expanding China’s welfare state, in particular, 
will crowd out other forms of spending, yet the floodgates appear already to be opening. 
One of China’s greatest strengths in recent years has been its ability to allocate tremendous resources 
rapidly to programs for security, infrastructure, and technology development. Many of these programs 
are seen as extremely inefficient. As competition for resources intensifies, the leadership’s ability to 
allocate increasingly scarce funds effectively will face unprecedented tests. 
 
Domestic challenges may place increasing demands on, and funding claims by, China’s internal security 
forces, whose official budget already exceeds the PLA’s8
if funding for the paramilitary People’s Armed 
Police is counted as internal (in keeping with China’s own budget structure). Potential drivers include 
unrest in ethno-religiously-restive borderlands such as Xinjiang and Tibet as well as disaster relief, 
exacerbated by environmental degradation and climate change. Rising living costs and societal 
expectations may greatly increase the expense of current security approaches, which rely in part on large 
numbers of relatively low-paid individuals to provide physical security, surveillance, and monitoring of 
data from security cameras and other sources. 
This has a special significance for China’s ability to continue developing its external military 
capabilities. Beijing has judged that it can sustain multiple overlapping advanced programs 
simultaneously. China’s shipbuilding industry—which, aside from its missile and electronics industries, 
produces China’s most advanced indigenous defense products—has already proven able to do this with 
its simultaneous construction of multiple modern submarine and warship classes. Now China’s military 
aviation industry, which has traditionally lagged, also appears to be making this important strategic 
breakthrough. In many key areas, China’s number of multiple simultaneous programs is rivaled only by 
the U.S. But how long such dynamic investment can be sustained is unclear... 
http://www.uscc.gov/sites/default/files ... .30.14.pdf