Put all these factors together, and the risks that China faces become apparent: increasing unemployment, a slowing economy, and growing unrest. If past is prologue, China will resort to protectionist measures. It will try to manipulate its currency perhaps, generating a backlash from the international community. Then, it will likely try to erect greater trade barriers, with the potential weapon in such a trade war being its patents.
Encouraged by misguided U.S. policy makers, who have long touted the patent system as an enabler of innovation, China started amassing a large portfolio of patents roughly a decade ago. It provided academics, companies, and individuals significant incentives to patent ideas, including those copied from the West. With higher numbers of patent filings, professors in universities gain tenure, workers and students are granted residence permits to live in desirable cities, corporate income tax is reduced, and companies are offered lucrative government contracts. In 2011, 526,000 patent applications were filed in China—one quarter of all the filings in the world and more than the 503,582 filed in the U.S. that year. Many of these patents in China, when awarded, provide little more utility than extorting licensing fees from foreign companies that do business there.
Vivek Wadhwa is Vice President of Innovation and Research at Singularity University and Arthur & Toni Rembe Rock Center for Corporate Governance at Stanford University. His other academic appointments include Harvard, Duke and Emory Universities as well as the University of California Berkeley.
Then there’s the problem of escalating nationalism. Just as China escalated its nationalist rhetoric against Japan over the Senkaku Islands (called the Diaoyu by the Chinese), it may try to divert attention from economic problems by fermenting a nationalist fervor against the West. There is a big unknown in what this escalation of propaganda might do should it occur.
There is also the question of China’s young people and the effects of the one-child policy. Nearly all children and young adults in China — an overwhelming majority of whom are male — have grown up without siblings. They have received the almost undivided attention of their parents, and have been raised with the expectation that they will support their parents and grandparents. This means there is an all but nonexistent social safety net in China. But this new generation is better educated and connected than any before. This means there is reason to hope that they will rise up and demand freedom and democracy, eroding the power of the Communist Party. But this is the first sibling-less generation in history, making an accurate prediction as to what they will or won’t d impossible.
So, does China own the future – or does the U.S.? Given the intricate web of economic, political and social factors, the answer is more complicated than what’s presented in straight-line projections. The most likely scenario is that Chinese growth stalls and its government faces major unrest. I expect the United States, even though it will face greater trade and foreign policy challenges, will still come out ahead — far ahead.