Why the conventional wisdom about China's rise deserves a second look — and what four emerging signals suggest about its limits
Economist and Substack writer Noah Smith draws a sharp parallel between Japan-boosters of the 1980s and China-bulls of today. While he has previously assessed a "Chinese Century" as probable, he has recently updated toward skepticism — not collapse, but meaningful underperformance of current expectations. Four factors drive this update: industrial policy hitting limits, AI making China's tech edge less defensible, Xi Jinping entering an erratic authoritarian phase earlier than expected, and U.S. military demonstrations hinting at Chinese weakness.
In the 1980s, a cottage industry of books and articles predicted Japan's inexorable rise to global dominance. Ezra Vogel's Japan As Number One (1979) became the canonical text of this view. Then, in 1989 — at Japan's very zenith — Bill Emmott published The Sun Also Sets, predicting Japan would revert to the mean.
Emmott wasn't right about everything (he mischaracterized Japan as export-led when domestic investment was the real driver), but his core analysis was vindicated: Japan's financial fragility, demographic headwinds, and low service-sector productivity all proved decisive. History called him the winner.
The lesson is structural: when a nation is at its peak, contrarianism is socially costly and analytically undervalued. The same dynamic applies to China today. Skepticism of China's rise has largely evaporated in the West, and a majority of Americans now believe China has already overtaken the U.S. or soon will. The Vogel-style consensus is back — wearing different clothes.
Smith is careful not to overcorrect. China is roughly 12 times Japan's size — it can become the world's dominant industrial and geopolitical power without ever approaching U.S. or Japanese per-capita living standards. Scale alone gives China a structural advantage Japan never had.
Smith also dismisses two common bearish arguments as overblown:
Smith identifies four recent signals that have shifted him toward skepticism — none individually decisive, but collectively significant:
1. Industrial Policy Hitting Its Limits
China's state-directed industrial strategy has driven remarkable gains in EVs, solar, batteries, and semiconductors. But Smith now sees signs that this model is encountering diminishing returns faster than expected — overcapacity, subsidy dependency, and geopolitical blowback constraining the next phase of growth.
2. AI Agents Eroding China's Tech Advantage
The rapid rise of AI agents could prove a leveler. Much of China's tech edge rests on manufacturing scale and engineering talent executing well-defined tasks. AI agents — autonomous software that can research, code, and iterate — may compress the advantage that large, disciplined workforces provide, giving Western (and other) competitors a faster path to capability.
3. Xi's 'Death of Stalin' Phase Arriving Early
Smith has long argued Xi Jinping is China's biggest liability. His concern now is timing: the paranoid, trust-nobody phase of authoritarian rule — when leaders purge competent technocrats, make erratic decisions, and prioritize loyalty over results — appears to be arriving earlier than expected. This has direct implications for economic policymaking quality.
4. Trump's Venezuela/Iran Actions Signal Chinese Military Limits
Whatever one thinks of U.S. interventions in Venezuela and Iran, Smith reads them as a demonstration of American hard-power capacity that China currently cannot match. If China cannot project force credibly, its geopolitical leverage is more constrained than the prevailing narrative suggests.
Smith is not forecasting China's collapse. His revised view is more subtle and, arguably, more useful:
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Comparing the Japan-in-the-80s debate to the China-today debate