There has been much debate about China’s future as the world’s new superpower. However, commentators tend to downplay the numerous challenges that China faces. These problems include an ageing population, pollution and an inefficient growth strategy.

By 2050, a quarter of China’s population will be over 65 years old. This problem will create several challenges. Currently, there are over 180 million Chinese aged over 60; within 20 years this number will become 360 million. This situation will not only result in a drop in savings or an increase in unfunded liabilities but also a shrinking labour force; hence growth will be reduced in China and the Asian Tiger will no longer be the factory of the world. There are 980 million persons in the active labour force in China. However, based on the analysis of Professor Zhen Binwen of the Chinese Academy of Social Sciences, this number will reach its peak in 2015; but after the boom it will decline drastically. Professor Cai Fang, director of the Institute of Population and Labour Economics, estimates that the declining labour force will lower China’s annual growth rate by 1.5 percentage points from now to 2015, and it will decrease by a further percentage point during 2016-2020. Also, wages in China have increased by over 15 per cent during the last six years. China is no longer the land of cheap labour; manufacturers are now heading to Mexico and Southeast Asia.

Environmental degradation is also another hurdle for China. Air and water pollution kills over 750,000 individuals annually in China. According to TIME magazine, the world’s most polluted cities Linfen and Tianying are located in China. Pollution will affect the health of workers and unhealthy labourers cannot be productive. Further, health costs of air and water pollution amount to eight per cent of China’s GDP.

Sustainable development was not pursued by China’s leaders and the nation is now reaping the dire consequences. Additionally, China has pursued an unsustainable investment-led growth strategy; investments accounts for 50 per cent of China’s GDP. China has followed the Asian development model created by Japan. According to Alice Amsden, this policy is known as “getting prices wrong”. In order to achieve high levels of investments to spur growth, the State subsidises strategic sectors to make them appear lucrative and less risky. Furthermore, the Government creates distortions in the market by manipulating foreign exchange rates and interest rates, thereby making a surplus of capital available for investments. This policy is unstable because, by manipulating rates, distortions are created in the market, excess capacity is generated and money is wasted. Funds are also invested in inefficient subsidised companies, therefore, the debt level rises, bad loans are created, and a credit crisis has emerged. Even, China’s former premier Wen Jiabao described the economy as “unstable, unbalanced, uncoordinated and ultimately unsustainable”.