Why China won't be Asia's dominant power

China will never eclipse US: Report
China will never eclipse US: Report

China may be Asia's economic powerhouse but it won't become the region's dominant power, according to a new report.

"In examining the factors that go towards the development of Chinese national power-and its ability to use it to achieve national objectives-predictions about a Chinese superpower with the ability to dominate Asia would be premature, if not improbable," said Paul Dibb and John Lee, authors of the report published by Australian think tank Kokoda Foundation.

The argument that China is already Asia's pre-eminent power based on its growing economic and military capacities is weak, the authors say. They expect the limitations of China's economic might, a lack of close bilateral relationships and weak military capability to keep the country from becoming an advanced political-economy that wields influence in the region anytime soon.

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"China is a dominant power, but it's not the dominant power in the region or the world. It's got the economic hardware in place... as a collective country, there's no denying that it's an economic and military power," said Vishnu Varathan, senior economist at Mizuho Bank.

An unproductive economy

China's gross domestic product growth rate of 7 percent may be a five-year low, but it's still the envy of most countries. However, experts say declining productivity is one of biggest tell-tale signs that China cannot maintain its current pace of growth.

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"The capital-output ratio estimate for 2012 was 5.5:1, meaning that a capital input of $5.50 achieves only $1 [of output]. As economic logic insists, and the development experiences of other East Asian countries show, capital-output ratios at this level depict an enormously wasteful and capital-inefficient economy that is not sustainable," said the report.

Other experts agree: "For a middle-income country, capital productivity has dropped too much. This occurred mainly in the past ten years, reflecting the efficiency problems on China's development path," said Xiaolu Wang and Yixiao Zhou, authors of the 2014 academic paper 'Deepening Reform for China's Long-term Growth and Development.'

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Furthermore, China will be unable to make the jump from middle-income to high-income status - a requirement for a dominant state- unless it improves the standard of living for citizens, the report added.

Doing so would require the allocation of more government funds to public goods such as social security and unemployment benefits, as well as healthcare, which only constitute 10.5 percent and 6.1 percent of the 2014 budget, respectively.

Here's why China isn't the major power in Asia
Here's why China isn't the major power in Asia

Exaggerated military power

The defense sector receives the lion's share of government finances, nearly 15 percent of the 2014 budget, but Dibb and Lee believe China will not become a military superpower until it's capable of taking decisive action on a global scale.

"Although China has developed potent military capabilities to make it hazardous for U.S. forces to operate in the approaches to China, the fact remains that Beijing could not enforce a full military blockade of Taiwan or attempt a full-scale amphibious invasion of that island," they wrote.

As a result of territorial disputes with Japan and the majority of Southeast Asia, China has few friends in Asia. A report from the Pew Research Centre earlier this year showed respondents in five out of eight Asian countries had overwhelmingly unfavorable views of China.

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This unpopularity undermines Beijing's influence and capacity to wield power in the region, Dibb and Lee said.

Mizuho's Varathan agreed. "China doesn't have the charismatic soft power that Asia's dominant power ought to have, it is still trying to gain friendships and investments in the region," he said.