"Chinas economy, like the economies of Japan and other East Asian states before it, will reduce its rate of growth dramatically in order to calibrate growth with the rate of return on capital and to bring its financial system into balance. To do this, it will have to deal with the resulting social and political tensions," says STRATFOR's Decade Forecast.
It explains: "First, Chinas current economic model is not sustainable. That model favors employment over all other concerns, and can only be maintained by running on thin margins."
"Second, the Chinese model is only possible so long as Western populations continue to consume Chinese goods in increasing volumes. European demographics alone will make that impossible in the next decade."
"Third, the Chinese model requires cheap labor as well as cheap capital to produce cheap goods. The bottom has fallen out of the Chinese birthrate; by 2020 the average Chinese will be nearly as old as the average American, but will have achieved nowhere near the level of education to add as much value. The result will be a labor shortage in both qualitative and quantitative terms."
"Finally, internal tensions will break the current system. More than 1 billion Chinese live in households whose income is below $2,000 a year (with 600 million below $1,000 a year). The government knows this and is trying to shift resources to the vast interior comprising the bulk of China. But this region is so populous and so poor and so vulnerable to minor shifts in Chinas economic fortunes that China simply lacks the resources to cope."
STRATFOR'S TOP PREDICTIONS FOR THE NEXT DECADE: China Collapse, Global Labor Shortages, New American Dominance
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PRAGMATIC CAPITALISM STRATFOR: CHINA WILL COLLAPSE
