Why China can’t keep growing like mad forever

China, not the U.S., is the world’s largest economy.

Though the U.S. is still tops when measured at market-exchange rates, China is about 20% larger after adjusting for the lower cost of goods and services there. The latter metric is what really counts, both in terms of standards of living and, probably, in terms of military purchasing power.

With four times as many people as the U.S., it makes sense that China would eventually have a larger economy; it’s unlikely that any industrialized country — including the U.S. — can maintain a fourfold productivity advantage over another forever.

For China, just being bigger than the U.S. is a pretty low bar. But that leaves the question of just how dominant China will eventually be in the world economy.

Chinese gross domestic product growth now is holding steady at about 6.5%. Supposing for the sake of illustration that the rest of the world grows at 3%, a 6.5% growth rate would mean that China would constitute a quarter of the world economy by 2029 — just 11 years from now — and 40% of the world economy by 2050.

By the 2060s, within the lifetime of today’s teenagers, China would account for more economic activity than the rest of the human race combined.

In comparison, the U.S. share of world GDP never reached 40%, even at the end of World War II, and was usually less than 25% during the 20th century. In other words, China is almost certain to become more economically important than the U.S. was during the past century.

But it’s very hard to maintain a 6.5% growth rate for four decades straight. As recently as 2011, in fact, China’s GDP grew almost 10%, a rate it had exceeded a number of times during the prior two decades. There are reasons to believe that a further slowdown is in the offing. Despite headlines proclaiming China’s remarkable advances in industry after industry, the country is bumping up against some fundamental constraints.

In 2013, China specialists Damien Ma and William Adams wrote a very prescient book titled “In Line Behind a Billion People: How Scarcity Will Define China’s Ascent in the Next Decade.” Ma and Adams lay out many of the constraints China will have to face during the coming decades — scarcities of food, resources, housing and potentially of political unity as well. Already, events seem to be bearing out their predictions.

China’s most important scarcity will be warm bodies. Though the one-child policy has been replaced with a two-child policy — and last week reports said China is planning to scrap all limits on the number of children a family can have — fertility rates remain well below the replacement level. Already, as the result of decades of population repression, the number of working-age people in the world’s largest country has begun to shrink.

The total number of Chinese people between the ages of 15 and 60 began to fall all the way back in 2012, and decreased by an estimated 5.48 million in 2017. Some forecasts have the working-age population falling by almost a quarter by midcentury. That’s assuming that fertility rates don’t fall even further, as they might if China follows the same pattern as its neighbors, South Korea and Taiwan.

A smaller country means a smaller GDP, and it also means rapid population aging. Fewer workers supporting more retirees, and an older, less productive workforce, mean slower growth, as countries such as Japan have discovered.

In addition, China may no longer be able to get a growth boost from urbanization. When people live close together in cities it increases productivity, since it’s easier for them to exchange goods and services. For decades, millions upon millions of Chinese people flowed from farms and small towns into the country’s big cities. But there are signs that this process is coming to an end.

Part of China’s slowing urbanization is due to low fertility and the emptying out of agricultural regions. But part of it is due to policy. Beijing and Shanghai have moved to reduce their populations, and Beijing has violently expelled many migrant workers. If displaced urbanites move to mid-tier cities, the economic damage could be limited, but if they return to live in small towns, it could act as a brake on growth.

A third constraint is energy. China is still very reliant on coal power, but thanks to environmental concerns, supply bottlenecks and simple lack of resources, the country’s coal consumption has been falling since about 2013. It is hoped that coal will be replaced with cheap solar power and the country will be able to improve energy efficiency, so lack of coal won’t send the economy grinding to a halt, but it will take time and money to make these changes.

These are China’s biggest constraints, but not the only ones. The country’s businesses have relied on a flood of cheap capital from state-owned banks, but that flow may taper off as more capital is misallocated. The country’s lack of freedom and highly intrusive surveillance apparatus may deter talented people from working there or achieving their full potential. Dependence on food imports also will continue to be a problem.

Finally, China’s ability to get technological advancement on the cheap, by stealing or reverse-engineering technologies from more developed countries, will dry up as the country runs out of ideas to grab, ending the era of easy catch-up growth.

So China, already the world’s largest economy, will almost certainly become the most economically important country in the history of the modern world. But a combination of natural and self-imposed constraints will probably keep it from global domination.

Smith writes a column for Bloomberg.