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