China: 10 warning signs to look for

The dominant view of China is that it will continue to increase in power and be the number one country globally by the target year of 2049 (the 100^th anniversary of the communist revolution).

Scenario planning encourages us to "think about the unthinkable". Is China's continued rise inevitable? It seems to be at present but we must be ready to "think about the unthinkable".

Here are 10 warning signs of how China's rise could be hindered. They are not predictions – simply warnings of what could happen.

First, no boom in history has continued indefinitely (there are more ex-empires in the world than currently flourishing civilizations). Indeed countries often collapse faster than it took them to rise to power. People may often be slow to recognize the pace of the decline. For example, Britain was in decline before World War I (1914-18) but it only became widely accepted in World War II (1939-45) as global leadership was transferred to the United States. China's boom may run out of steam.

Second, China's economy is just a bubble – and it may just burst (as with all bubbles). For example, there was the "tulip boom" in 17^th century Netherlands (then a great power) and many developed countries have had booms and busts in building canals, railways, and information technology.

Third, the Chinese government may not be able to coordinate all the parts of the growth machine and so it just melts down through too much activity in too many places. It is probably the most rapidly urbanizing country in world history. There is no precedent for the current rate of economic growth to be maintained by a newly industrialized country.

Fourth, there is the problem arising from the allegedly undervalued Chinese currency. The US has complained that the Chinese exports do well because the yuan is undervalued and so it has been pressing China to revalue its currency to make its exports more expensive (and so give US manufacturers a chance). The Chinese are resisting this pressure, if only because they can remember what happened to the Japanese yen.

In the 1970s, when Japan was making its own economic recovery, the US started to complain that Japan was doing well because it had an undervalued yen and so it pressured Japan to revalue its yen to make its exports more expensive. In 1985 US, Japan, UK, France and West Germany agreed on co-ordinated action to rebalance the global economy by revaluing the yen; the yen doubled in value by 1989. Japan, with its far more valuable yen, was able to go on a global spending spree. This spending spree ended in the early 1990s and the country has been in a virtual recession ever since.

The Chinese want to avoid the same fate as Japan – but American pressure has been relentless. Additionally a dramatically revalued yuan would make goods from other cheaper countries, such as Vietnam and India, more attractive and so cheap goods will still enter the US (but they will not be coming from China).

Fifth, China's booming economy is coming at a great environmental cost. For example, urban expansion, road construction and the creation of new factory sites all come at the cost of existing agricultural land use. Water tables are falling, desert areas are increasing, and some of China's topsoil now even gets carried in the wind across the north Pacific to the western US and Canada. There is industrial pollution in the atmosphere and rivers (16 of the world's 20 most polluted cities are in China).

Sixth, there is the risk of political instability. When the belly is full, the brain starts to think. A dictatorship can run a poor peasant society, where people are worrying about where their next meal is coming from. But a modern industrial state requires the free flow of ideas.

Once people have acquired a basic level of security (food, shelter, clothing) they want a say in how they are being governed. There are more democracies in the world than ever before. They have evolved as the society has developed economically, such as in Taiwan, South Korea and Indonesia. Ironically, it seems that dictatorships that encourage economic development to take place, also plant the seeds of their own destruction. Will China be able to manage the transition to democracy?