Global Challenges from the Rapid Rise of China (Carl J Dahlman)


Over the last 30 years there has already been a significant power shift to developing world in general and to China in particular. This shift is being accelerated as a result of the 2008/2009 economic crisis. The rapid rise of China raises economic and environmental sustainability challenges to the world. Section A tracks the shift in economic power to China by looking at shares of global GDP in terms of purchasing power parity. China’s share has increased from 2 % in 1980 to 12.5% in 2009. Section B provides a short analysis of the 2008/2009 crisis and its implications for growth. The crisis originated in the US and spread to the rest of the world. The full recovery will be long. The eventual rise in the cost of capital will lead to lower overall growth. The crisis has accelerated the power shift from the US and Europe to Developing Asian economies, particularly to China. Section C looks in more detail at China. China was less negatively affected by the crisis. It has also recovered faster for structural and policy reasons. China is also likely to continue to grow faster than the rest of the world in spite of some serious internal and external challenges. Section D examines some of the challenges raised by the rise of China. Its growth will continue to put significant adjustment pressure on the global system. This will be in terms of the increasing competitiveness of its manufactured and service exports. It will also mean additional competition for raw materials and commodities in general, and energy in particular.

Compounding the challenges, its expanding energy use will contribute significantly to increased CO2 emissions. This raises complex issues of development and environment, as well as of equity and burden sharing. Section E concludes that promoting cooperation rather than increasing frictions will require adjustments among all major stakeholders, particularly the US and China. Changing economic power and the global warming constraint will also require adjustment in the governance of the global economic and political systems, as well as increased international financial and technology transfer to developing countries. Finally it will also require developing and implementing more sustainable development models.

Working Paper