This article was originally published in Vol. 4 No. 4 of our print edition.

Introduction

The term ‘peak China’ refers to the point at which China crests according to certain key metrics, from which point on it will be on the decline. This turning point is reached by every empire, so it should be no surprise that China will do likewise at some time in the future. While in the 2000s and 2010s it was widely believed that the twenty-first century would be the ‘Chinese century’, clouds had started to gather on the horizon by the early 2020s, with some scholars, such as Yi Fuxian, going as far as to declare, as early as 2023, that the Chinese century was already over.¹

Of course, even the term ‘peak China’ is open to debate. If we take it to mean the peak of absolute GDP or military power, then it is unlikely to arrive any time soon. At least not before the second half of the century, when China’s absolute population is predicted to crash sharply. In any case, a country’s absolute GDP or the size of its military arsenal is a poor indicator. The relative position of a country is defined not by these, but by how they relate to those of rival powers. If the GDP or military arsenal of a country lags far behind its main rivals, then that country is in a poor position, regardless of the absolute size of its economy or military, while if its economy and military greatly outweigh its rivals, then it is in a strong position, regardless of the absolute size. Therefore, in this paper, I define peak China as the point at which China’s GDP reaches its maximum share in the global economy, as measured in percentage terms, before starting to gradually decline, due to its growth rate becoming slower than the global average. This will mark the peak of China’s global economic power, from which point on it will be on a relative decline. While not long ago China was expected by many to become the dominant global power, it now seems likely that Peak China may occur as early as the second half of this decade.

The Debate

As recently as 2020, China was expected to overtake the US as the world’s largest economy as early as 2028. Soon, however, it became apparent that a general slowdown had hit the Chinese economy, prompting a debate around the question of peak China. A paper published by the Brookings Institute in November 2023 cites reasons for the slowdown, including China’s property bubble and demographic downturn, and also summarizes the debate: at the time, different analyses put the Chinese growth rate for the rest of the decade at anywhere between 2 and 5 per cent.²

‘China’s growth rate already lags behind major emerging economies in South and Southeast Asia’

A 2022 paper by Roland Rajan and Alyssa Leng, cited by the Brookings paper, predicts an average 2–3-per-cent GDP growth rate for China until 2050, with average annual growth decelerating to 3 per cent by 2030, and to 2 per cent by 2040—a stark contrast to the 5–6-per-cent growth levels expected by many in the 2010s, which were the basis for the predictions of China becoming the dominant superpower. While with a growth rate of 5 per cent, the GDP of China could have grown to two and a half times that of the US, if the Leng and Rajan forecast is correct, it will never be more than 20 per cent higher of that of the US. Leng and Rajan state that of the twenty recent studies they had analyzed as of 2022, the majority predicted an average growth rate of higher than 5 per cent until 2030, and 3.5–4 per cent between 2020 and 2050.³

A general re-evaluation of the situation continued, with the IMF lowering its forecast. Whereas in April 2022, at the time when the Leng and Rajah paper was published, the IMF still predicted 4.92-per-cent and 4.48-per-cent growth for 2026 and 2027 respectively,⁴ their April 2024 forecast lowered those figures to 3.77 per cent and 3.58 per cent, getting closer to the range predicted by Leng and Rajah. Moreover, by predicting growth rates under 3.5 per cent, specifically 3.38 per cent and 3.31 per cent for 2028 and 2029 respectively,⁵ the IMF predictions for those years are now within the range of what Rajah and Leng predicted, and sharply opposed to the predictions it was making as recently as 2022.

According to a long-term Goldman Sachs forecast published in 2022, China will only surpass the US in 2040, and its share of global GDP will already be smaller in 2040 than in 2030, which means that in the 2030s China’s growth will be slower than the global average. As such, averaged across a decade, Goldman’s forecast suggests that peak China can be put at approximately 2030.⁶ Indeed, it may be even closer: for the years 2026–2029, the April 2024 IMF forecast predicts growth rates of 3.77 per cent, 3.58 per cent, 3.38 per cent, and 3.31 per cent respectively, while it forecasts 2.64 per cent, 2.62 per cent, 2.57 per cent, and 2.55 per cent for global economic growth during those same years.⁷ As for 2027–2029, the difference between China’s GDP growth and that of the world will be less than 1 per cent, well within the margin of error, thus this period can already be seen as the years of peak China. In other words, within this period, China’s growth may drop below the global average at any time, and will in all likelihood be slower than the global average from then on.

Even the IMF forecast, however, could be an overestimate. As transparency is often questionable in Marxist–Leninist one-party states, this should be no surprise. Rhodium Group, for example, has come to the conclusion that in reality, GDP growth was only 1.5 per cent in 2023, and is expected to be just 3–3.5 per cent in 2024.⁸ While this Rhodium Group study did not provide a forecast for the rest of the decade if growth in those years is slower than the IMF forecast to a degree even remotely resembling the discrepancy suggested for 2023–2024, this would mean that peak China—in the sense of China’s share in the global economy reaching its maximum extent—is already upon us, and China’s growth will probably fall below the global average by the second half of the 2020s. Should Chinese GDP growth in the second half of the decade be slower than the IMF forecast by an average of even 1 per cent annually, this would mean peak China as early as 2026, and the pace of China’s growth in the second half of the decade would only be on roughly the same level as that of the United States.

Factors Suggesting an Even Lower Growth Rate

There are additional factors that strongly suggest China’s actual growth could very well be lower than even the revised 2024 IMF forecast, and thus support the claims of Rhodium Group. One is demographics. In their forecast published in 2022, the United Nations still expected China’s total fertility rate to remain above 1.2 for the rest of the decade, and to be as high as 1.27 as late as 2030.¹⁵ Since then, it turned out, however, that China’s total fertility rate fell to 1.08 by 2023, and may remain under 1 for the rest of the decade.¹⁶ Also, while the 2022 UN report estimated China’s population would be 1.426 billion in 2023, a January 2024 report by China’s National Statistics Bureau put it to a mere 1.410 billion, 1.12 per cent lower than the UN figure.¹⁷ Also between 2017 and 2023, China’s birth rate virtually halved, falling from 12.64 per thousand inhabitants in 2017 to a mere 6.39 in 2023.¹⁸ In absolute terms, this represents a drop from 17.23 million births in 2017 to 9.02 million births in 2023.¹⁹ Assuming that the April 2024 IMF forecast was calculated on the basis of the 2022 UN population figures, this alone likely means that its GDP growth estimate is somewhat of an overestimate.

However, even these already disastrous demographic numbers may be overestimated. Researcher Yi Fuxian has pointed out certain discrepancies suggesting that the 2022 UN figures, based on official Chinese statistics, overestimated the cohort born between 1996 and 2007 by 15 per cent, and live birth in the years 2018, 2019, and 2020 by 44 per cent, 42 per cent, and 40 per cent respectively. This suggests that for the years in between, deviation from the UN estimates would gradually increase from 2007 to 2018. This would in turn mean China’s total fertility rate may have already been under 1 in 2018, having presumably dropped below 1 in 2017 if the deviation in that year was even remotely close to that of 2018. Yi does not provide specific estimates for the years 2021, 2022, and 2023, but if the suggested trends between 2018 and 2020 continued, then by now, China’s total fertility rate may be on roughly the same level as that of South Korea, or possibly even below it, leaving China with the lowest total fertility rate of any sovereign nation on earth. Yi’s conclusions also suggest that China’s population peaked as early as 2018, and has been on the decline ever since, meaning that instead of the population of 1.43 billion estimated by the United Nations for the year 2022, China only had a population of 1.28 billion people that year. This would also mean that by 2050, China’s population will have fallen to a mere 1.02 billion, as opposed to the 1.31 billion figure predicted by the UN in 2022.²⁰

Yi arrived at these conclusions by two means: regarding the cohort born between 1996 and 2007, Yi noticed that whereas the Chinese Household Registration Database put the number of those between the ages of three and fourteen at 169 million in 2010, for the years when this cohort was born (1996–2007), the number of live births was given as 210 million. This represents a discrepancy of 24 per cent. However, the 2022 UN estimate already seems to have revised the size of this cohort to a figure below these birth figures, putting it at 195 million, thus decreasing the discrepancy to 15 per cent. Regarding the number of children born in 2018, 2019, and 2020, Yi noticed that the number of BCG vaccines, which are mandatory for every single Chinese infant at birth, started to gradually deviate from the number of live births to the extent that, by the late 2010s, the gap had reached the scale indicated above. A massive leak from the Shanghai Police Department also seems to confirm the discrepancy. As the cohort born between 1996–2007 now represents 17–28-year-olds, it essentially overlaps with the population of young adults joining the workforce. If Yi Fuxian’s calculations are right, and this cohort is 15 per cent smaller than the numbers on which the IMF forecast is based, whereas the number of senior citizens reaching retirement age and leaving the workforce remains unchanged, this may well support the claims of Rhodium Group that the IMF forecast is an overestimate.²¹

Adding to all of this is the 2024 demographic forecast of the United Nations, published on 11 July 2024. While the 2022 forecast, which is now the standard point of reference for most economic forecasts, predicted a total fertility rate of 1.21 for the year 2024, the 2024 forecast estimates just 1.01 in 2024. This is still above the figures suggested by Yi Fuxian, but significantly below what most economic forecasts have until now used as reference.²² While the paper by Leng and Rajah concluded that China’s annual GDP growth would decelerate to 3 per cent by 2030 and to 2 per cent by 2040, based on an estimated average annual decrease of China’s working-age population of 0.78 per cent from 2022 to 2050,²³ the 2024 UN forecast already suggests an annual average decrease of 1.06 per cent between 2024 and 2050, and potentially as steep as an average of 1.21 per cent annually at the lower end of their 80-per-cent uncertainty margin.²⁴

This conservative estimate, while still significantly more optimistic than Yi Fuxian’s figures, already indicates an additional 0.43 per cent annual average diminution of China’s working age population compared to the figures Leng and Rajah used as reference for their estimates predicting that China’s average annual GDP growth would slow to 3 per cent by 2030 and to just 2 per cent by 2040. Even if GDP per individual of working age remains what Leng and Rajah forecasted, this would reduce growth to somewhere around 2.5 per cent by 2030, and around 1.5 per cent by 2040.

Another issue is China’s property sector, which at its peak made up 25 per cent of China’s GDP. The Chinese property industry financed its projects by taking out massive loans. Fearing that the debt levels of real-estate companies had risen dangerously high, in 2020 the Chinese government introduced its ‘three red lines’ policy, which restricted how much debt companies could take on. As a result, several major real estate companies defaulted. This also impacted customers and resulted in large numbers of mortgages for apartments that were never built. To help resolve this problem, in 2024 the Chinese government introduced a stimulus plan obliging banks to offer mortgage loans with lower deposits and at lower interest rates, and the plan also includes the Chinese government purchasing properties and lending them out as social housing. This plan, however, may be too small to cover the entire property market.²⁵

‘China’s aspirations to achieve global dominance or even a degree of influence equal to that of the United States are unlikely to succeed’

According to an analysis by S&P, the stimulus package risks causing trouble in the banking sector, because customers can get mortgages with both lower mortgage deposits and interest rates, which combined with falling property prices could end up saddling the banks with loans on properties that cost less than the loans, and are thus impossible to collect. Another problem in the property sector is that due to the property bubble of the last decade, it has ended up heavily overbuilt. According to the Chinese Beike Research Institute, as of 2022, the average vacancy rate in 28 large and medium-sized Chinese cities was 12 per cent, and even in the most prosperous cities, Beijing, Shanghai, and Shenzhen, it stood at 7 per cent.²⁶ He Keng, former deputy head of the Chinese Statistics Bureau, suggests even higher numbers, claiming that the vacant homes in China could house somewhere between 1.4 and 3 billion people, which would mean an overbuilding rate of 100–200 per cent. Although from the phrasing it is not entirely clear whether He’s 1.4 to 3 billion figure represents only vacant properties, or rather the entire housing stock of China, even in the latter case this would still mean an overbuilt ratio of up to 100 per cent—a staggering level.²⁷

Even if we assume that the more moderate and more detailed figures of the Beike Research Institute of 12 per cent are true, that is in itself an alarming rate. As a result of all the issues outlined above, Richard Wright, a Rhodium Group analyst, has concluded that China’s real estate market will stabilize at 40–50 per cent of its peak level, and not rise above that even in the long run.²⁸ Given that the Chinese property sector is the primary target for household savings, tying up 70 per cent of household wealth,²⁹ property prices stabilizing at just 40–50 per cent of the peak may mean a significant loss of household savings on a very large scale, thus potentially increasing social tensions. Lastly, troubles in China’s property market could also act as a drag on the country’s GDP growth.

A third factor that may mean growth figures significantly below the 2024 IMF figures for the rest of the decade is debt-fueled growth and the corresponding debt of China’s local governments. One factor that significantly contributed to China’s growth has been infrastructure projects financed by provincial governments, as these governments were also expected by the central government to contribute to the country’s GDP growth. However, this incentivized local governments to prioritize short-term GDP growth over investments either in long-term productivity or long-term debt trends. This led to much effort wasted on large-scale infrastructure projects, which added little to long-term productivity or growth, and also a dramatic growth of local debt to finance this.³⁰ By 2022, local debt in China had reached the staggering rate of 12.58 trillion USD, equivalent to 76 per cent of the country’s GDP.³¹ By 2023, the debt-to-GDP ratio in two thirds of China’s provinces was above the global warning line of 60 per cent.³² An apparent example of this phenomenon has been the case of the province of Guizhou, which has built nearly 30,000 bridges, with a combined length of 4400 km.³³ As a result, more than 40 of the 100 highest bridges in the world, and five of the ten highest bridges in the world, are located in this single Chinese province. This boosted GDP growth in the short term, but with questionable benefits for long-term productivity, and as it was in large part financed by loans it has had a runaway effect on debt, to the extent that the province has had to apply for a bailout from the central government.³⁴

Having judged the increase in local government debt to be unsustainable, the Chinese government has ordered a halt to infrastructure projects of this kind in no fewer than twelve province-level administrative units.³⁵ As such infrastructure projects were a major element in Chinese GDP growth, halting them on such a broad scale may well have a slowing effect on China’s GDP growth, especially if in the future the central government has to halt such projects in other provinces as well, due to increasing local government debt.

Conclusion

To sum up, the factors discussed above strongly support the claim of Rhodium Group that the IMF overestimated China’s growth rate, which in turn means that, in reality, peak China as defined here is already upon us, in the mid-2020s. To get a realistic assessment of the situation, however, we must distinguish between what this kind of peak China means and does not mean for future trends in global politics. On the one hand, it does not indicate any likelihood of a long-lasting period of recession for China—still less collapse—any time soon. Of course, one-off events such as a potential collapse of the Chinese real estate sector may trigger brief periods of recession, in a manner analogous to the US subprime crisis, and financial problems may trigger political power struggles and political crises. However, such events are unpredictable ‘black swan’ events, rather than the inevitable outcomes of the long-term trends. Black swan events, however, may or may not occur, and even if they do, it is hard to say whether their impact will be brief or long lasting.

What long-term trends do suggest is something more like the history of post-1990 Japan: first, the 1990s were labeled as Japan’s ‘lost decade’, but since then, apart from some good years, the following decades have not managed to achieve significantly higher average growth rates. Yes, Japan still remains a major advanced economy and a significant power, but instead of the rapid growth of the previous three decades, it became a state characterized by stagnation and started to slowly but steadily lose ground to competitors on both the regional and the global level. Thus, the 2020s could be for China what the 1990s were for Japan: the start of a lasting period of low growth, if not stagnation, and an aging society; a period in which China’s average GDP growth lags behind the global average, and perhaps even behind that of the United States.

Regarding the impact of such a situation on the international balance of power, it does not mean an immediate, significant weakening of China, except in a scenario in which the economic downturn triggers a black swan event. It still does mark several important turning points, however: first, China’s aspirations to achieve global dominance or even a degree of influence equal to that of the United States are unlikely to succeed. Second, as China’s growth rate already lags behind major emerging economies in South and Southeast Asia, such as Bangladesh, India, Indonesia, the Philippines, and Vietnam, and is predicted to be less than half of most of these in the second half of this decade, China’s aspirations to dominate Asia also seem futile. This trend is also reinforced by Japan’s decision to double its military spending, which—despite Japan’s growth rate lagging behind that of China—will also mean Japanese military expansion at at least the same pace as China during the second half of this decade. Paradoxically, due to the slow growth rate of the United States, this suggests that the impact of China’s slowdown will be more apparent in terms of its position in Asia than in its position relative to the United States. On the other hand, China’s global influence rests on its position in Asia, so the weakening of the latter will also cause the weakening of the former. This further suggests, however, that the halt of China’s global advance will probably be a result of it becoming increasingly tied down in Asia, rather than a change in its position relative to the United States on a bilateral basis.

In other words, while China often seems to build its hopes on a multipolar shift in the global order at the expense of the United States, what we actually see unfolding is rather a multipolar shift within Asia at the expense of China. As India, Japan, the Philippines, and Vietnam all bandwagon with the US to contain China, either through the Quad, the Quad Plus, or bilateral security pacts, and even Bangladesh and Indonesia show little inclination to align with China, and are at best unaligned, this multipolar shift in the Asian order is a trend towards the containment of China, enabling the US to manage the multipolar shift in the global order in a way that allows it to retain the role of primus inter pares.

NOTES

1 Yi Fuxian, ‘The Chinese Century Is Already over’, The Japan Times (10 March 2023), www.japantimes.co.jp/opinion/2023/03/10/commentary/world-commentary/china-population-decline/.

2 Peter A. Perti, ‘Peak China: Why Do China’s Growth Projections Differ So Much?’ Brookings (3 November 2023), www.brookings.edu/articles/peak-china-why-do-chinas-growth-projections-differ-so-much/.

3 Alyssa Leng, and Roland Rajah, ‘Revising down the Rise of China’, Lowy Institute (14 March 2022), www.lowyinstitute.org/publications/revising-down-rise-china.

4 ‘World Economic Outlook Database, April 2022’, IMF.org, www.imf.org/en/Publications/WEO/weo-database/2022/April, accessed 29 October 2024.

5 ‘World Economic Outlook Database, April 2024’, IMF.org, www.imf.org/en/Publications/WEO/weo-database/2024/April, accessed 29 October 2024.

6 Kevin Daly, and Tadas Gedminas, ‘The Path to 2075’, Goldman Sachs (6 December 2022), www.goldmansachs.com/pdfs/insights/pages/gs-research/the-path-to-2075-slower-global-growth-but-convergence-remains-intact/report.pdf.

7 ‘World Economic Outlook Database, April 2024’.

8 Daniel H. Rosen et al., ‘Through the Looking Glass: China’s 2023 GDP and the Year Ahead’, Rhodium Group (29 December 2023), https://rhg.com/research/through-the-looking-glass-chinas-2023-gdp-and-the-year-ahead/.

9 Leng, and Rajah, ‘Revising down the Rise of China’.

10 Leng, and Rajah, ‘Revising down the Rise of China’.

11 ‘World Economic Outlook Database, April 2024’.

12 ‘World Economic Outlook Database, April 2024’.

13 Rosen et al., ‘Through the Looking Glass’.

14 ‘World Economic Outlook Database, April 2024’.

15 United Nations, World Population Prospects: The 2022 Revision. https://population.un.org/wpp/, accessed 29 October 2024.

16 Laura Hood, ‘China’s Population Shrinks again and Could More Than Halve – Here’s What That Means’ Shutterstock (18 January 2024), https://theconversation.com/chinas-population-shrinks-again-and-could-more-than-halve-heres-what-that-means-220667.

17 ‘China’s Population Decreases by 2.08 Million in 2023 to 1.40967 billion’, Global Times (1 January 2024), www.globaltimes.cn/page/202401/1305550.shtml.

18 ‘Birth Rate in China from 2000 to 2023 (in Births per 1,000 Inhabitants)’, Statista, www.statista.com/statistics/251045/birth-rate-in-china/, accessed 29 October 2024.

19 ‘Number of Births per year in China from 2013 to 2023 (in Millions)’, Statista, www.statista.com/statistics/250650/number-of-births-in-china/, accessed 29 October 2024.

20 United Nations, World Population Prospects: The 2022 Revision; Yi Fuxian, ‘China Is Dying out’, Asialink, The University of Melbourne (16 February 2023), https://asialink.unimelb.edu.au/insights/china-is-dying-out; Yi Fuxian, ‘Leaked Data Show China’s Population Is Shrinking Fast’, Project Syndicate (27 July 2022), www.project-syndicate.org/commentary/chinese-population-smaller-than-stated-and-shrinking-fast-by-yi-fuxian-2022-07.

21 United Nations, World Population Prospects: The 2022 Revision; Yi, ‘China Is Dying out’; Yi, ‘Leaked Data Show China’s Population Is Shrinking Fast’.

22 United Nations, World Population Prospects: The 2024 Revision, https://population.un.org/dataportal/home, accessed 29 October 2024.

23 Leng and Rajah, ‘Revising down the rise of China’.

24 United Nations, World Population Prospects: The 2024 Revision.

25 Aileen Chuang, and Daniel Ren, ‘China Property: Beijing’s Stimulus Plan Needs More Time, Money and Policy Support to Resolve Long-standing Housing Crisis’, South China Morning Post (18 May 2024), www.scmp.com/business/china-business/article/3263202/china-property-beijings-stimulus-plan-needs-more-time-money-and-policy-support-resolve-long-standing.

26 ‘Oversupply in China’s Housing Market Remains a Problem: Former Statistician’, Global Times (24 September 2023), www.globaltimes.cn/page/202309/1298786.shtml.

27 ‘Even China’s 1.4 Billion Population Can’t Fill All Its Vacant Homes, Former Official Says’, Reuters, (25 September 2023), www.reuters.com/world/china/even-chinas-14-bln-population-cant-fill-all-its-vacant-homes-former-official-2023-09-23/.

28 Joe Cash, and Kevin Yao, ‘China Sees Property Silver Lining But Can’t Shake Japan Comparisons’, Reuters (4 June 2024), www.reuters.com/world/china/china-sees-property-silver-lining-cant-shake-japan-comparisons-2024-06-04/.

29 Liu Lingang, ‘Property Sector Critical to Growth’, China Daily (29 January 2024), www.chinadaily.com.cn/a/202401/29/WS65b6ff1ba3105f21a507ec78.html.

30 Cheng Leng, and Andy Lin, ‘The Local Government Debt That Threatens China’s Economy’, Financial Time, (24 August 2023), www.ft.com/content/e8cb37b6-df30-4729-8509-8fc4d482d287.

31 ‘Exclusive: China Tells Banks to Roll over Local Government Debts as Risks Mount – Sources’, Reuters (1 October 2023), www.reuters.com/world/china/china-instructs-banks-roll-over-local-government-debt-sources-2023-10-17/.

32 Leng, and Lin, ‘The Local Government Debt That Threatens China’s Economy’.

33 ‘Bridges Become Guizhou’s Most Popular Tourist Destinations’, eGuizhou (26 October 2023), www.eguizhou.gov.cn/2023-10/26/c_939177.htm.

34 Leng, and Lin, ‘The Local Government Debt That Threatens China’s Economy’.

35 ‘China Wants to Grow Its Economy. So Why Is It Halting Construction?’, The Christian Science Monitor (19 January 2024), www.csmonitor.com/World/Asia-Pacific/2024/0119/China-wants-to-grow-its-economy.-So-why-is-it-halting-construction.

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