GEORGE FRIEDMAN: China’s Economy Continues to Decline.

China’s economic miracle, like that of Japan before it, is over. Its resurrection simply isn’t working, which shouldn’t surprise anyone. Sustained double-digit economic growth is possible when you begin with a wrecked economy. In Japan’s case, the country was recovering from World War II. China was recovering from Mao Zedong’s policies. Simply by getting back to work an economy will surge. If the damage from which the economy is recovering is great enough, that surge can last a generation.

But extrapolating growth rates by a society that is merely fixing the obvious results of national catastrophes is irrational. The more mature an economy, the more the damage has been repaired and the harder it is to sustain extraordinary growth rates. The idea that China was going to economically dominate the world was as dubious as the idea in the 1980s that Japan would. Japan, however, could have dominated if its growth rate would have continued. But since that was impossible, the fantasy evaporates – and with it, the overheated expectations of the world.

China’s dilemma, like Japan’s, is that it built much of its growth on exports. Both China and Japan were poor countries, and demand for goods was low. They jump-started their economies by taking advantage of low wages to sell products they could produce themselves to advanced economies.

There’s also an upper-limit to double-digit growth when that growth is based on selling to countries with low single-digit growth. Eventually something like balance is achieved, and we seem to have reached that point with China over the last few years.

Beijing’s goal has been to transition from export-driven growth to domestic consumer-driven growth, but the corruption inherent to China’s crony-capitalist/officially-communist system is a serious impediment. Grave doubts about China’s political/economic future drive Chinese to sock their money away (under the mattress or, whenever possible, overseas) rather than spend freely it like Westerners do.

To escape this trap, China must either move into high-margin industries by through technological innovation (for which autocracies have little aptitude), or transition to a more transparent, multiparty democracy (which the Chinese Communist Party won’t allow).

It’s a nasty trap, but it’s one of Beijing’s own making.