When will China overtake the U.S, economically?

[DoggerDan]

I met with a good friend of mine this evening, formerly a trader with Smith-Barney, currently an investments broker, who stated unequivocally that "China's days are numbered" as a contender against the U.S., economically. He claims the reason rests on China's rise due to it's inexpensive labor, but natural market forces are causing such a rise there that it's competitive edge has been largely undermined.

 

[MarcoD]

I met with a good friend of mine this evening, formerly a trader with Smith-Barney, currently an investments broker, who stated unequivocally that "China's days are numbered" as a contender against the U.S., economically. He claims the reason rests on China's rise due to it's inexpensive labor, but natural market forces are causing such a rise there that it's competitive edge has been largely undermined.

Personally, I think China's days will be numbered the moment the rest of the world notices that their investments don't pay off. Chinese are good traders, heck they own Indonesia, but I just don't believe that with the current social/political structure in place, foreign investors will get any good ROI.

 

[cbetanco]

I just don't think a 9% growth in GDP is sustainable. Their entire economy has bubble written all over it. Sure, they can devalue their currency, and their government can put into effect social/economic programs a lot faster than the US, but at 1.2 billion people, how are they going to be able to sustain growth? How will they grow enough food? Also, their environment has gone off a cliff, and the land just can't sustain all those people.

 

[Willowz]

Well after the secondary sector comes the service sector. So, the boom might continue. Though, the real estate market may be in for a hard landing.

 

[shashankac655]

Understanding China

 

[mheslep]

I just don't think a 9% growth in GDP is sustainable. Their entire economy has bubble written all over it. Sure, they can devalue their currency, and their government can put into effect social/economic programs a lot faster than the US, but at 1.2 billion people, how are they going to be able to sustain growth? How will they grow enough food? Also, their environment has gone off a cliff, and the land just can't sustain all those people.

Economic growth is not the same thing as population growth. The Chinese population will start to decline around 2050 per current trends.

 

[CAC1001]

Understanding China

IMO, the article gets some things wrong, or says some things that are very questionable, for example:

The West's failure to understand the Chinese has repeatedly undermined its ability to anticipate their behavior. Again and again, our predictions and beliefsabout China have proved wrong: that the Chinese Communist Party would fall after 1989, that the country would divide, that its economic growth could not be sustained,

It may not be sustainable (and that's assuming it is even as high as they say it is right now, which is questionable). Every country that is growing gains an aura of invincibility initially, until it experiences a crash of some type.

that its growth figures were greatly exaggerated,

They likely are. Constantly building empty apartments and cities and various other infrastructure that is not being used, and is likely a good deal shoddy quality, is not economic growth. It counts as GDP growth, but in the end, it isn't real economic growth (this is one of the problems with how to measure a country's GDP; during the Cold War, the Soviet Union's economy appeared a lot stronger than it really was because of all the stuff they produced, the difference being that it was all of terrible quality).

The Chinese state enjoys a very different kind of relationship with society compared with the Western state. It enjoys much greater natural authority, legitimacy and respect, even though not a single vote is cast for the government. The reason is that the state is seen by the Chinese as the guardian, custodian and embodiment of their civilization. The duty of the state is to protect its unity. The legitimacy of the state therefore lies deep in Chinese history. This is utterly different from how the state is seen in Western societies.

This I don't buy for a second. The Chinese government is terrified of a major uprising occurring, that is why it has censored completely the news about the various uprisings occurring in the Middle East and why they enacted such a massive stimulus in the first place. Keeping the population docile depends on constant economic growth. If the economy tanks (which it did as Western demand dropped off in 2008), the Chinese government stepped into make up for that demand to provide the illusion of a still-growing economy. When they can no longer do this, there will be a big problem. If the Chinese people afford the Chinese government such a high level of respect, then there would be little to no fear of uprisings, and the Chinese could have let their economy cycle through the recession in a natural manner. As it is, China has a secret police, a national police force that puts down any uprisings that occur, and a state-run media.

Additionally, when one takes a look at the sheer level of corruption that occurs in China, we see that the Chinese are in many ways not much different than humans anywhere else. They pursue their own economic interests.

If we are to understand China, we must move beyond the compass of Western reality and experience and the body of concepts that has grown up to explain that history. We find this extremely difficult. For 200 years the West, first in the shape of Europe and then the United States, has dominated the world and has not been required to understand others or The Other. If need be it could always bully the latter into submission.

The emergence of China as a global power marks the end of that era. We now have to deal with The Other -- in the form of China -- on increasingly equal terms.

The West has not dominated the world for 200 years with no need to understand The Other or an ability to beat the latter into submission. Does this guy forget the 20th century? The Cold War? That little entity known as the Soviet Union which the West (primarily backed by the United States) stood as a check against for over 40 years?

The West was constantly trying to understand the Soviet Union, and had different opinions on how to handle the Soviets. The West could not bully the Soviets, if anything, the Soviets tried bullying the West. The Soviet forces in terms of sheer numbers greatly out-numbered the Western forces. As an empire, the Soviet Union absorbed by force a whole slew of surrounding countries into its sphere, crushed rebellions (in its early years anyway), and funded a slew of overseas colonies. If not for the Soviet Union, there would have been no Vietnam War, or if there was, it would've been a lot different.

China, moreover, is possessed, like the West, with its own form of universalism. It long believed that it was "the land under heaven," the center of the world, superior to all other cultures. That sense of self, which has engendered a powerful self-confidence, has been persistently evident over the last 40 years, but with China's rise, it is becoming more apparent as the country's sense of achievement and restoration gains pace. Or to put it another way, when the presidents of China and the United States meet in Beijing in 2019, with the Chinese economy fast approaching the size of the American economy, we can be sure that the Chinese sense of hubris will be far stronger than in 2009.

That's provided China's economy continues at the very high growth rates, which I doubt it even is currently (it doesn't even have enough domestic demand to support itself). I also question whether China's economy can ever really surpass the Western economies (such as the U.S.'s) because of the lack of free flow of information in China. They have a state-run media and lots of censorship. I think that would infringe on the ability of their economy to have the free flow of information and ideas that we have here in the U.S. and other such economies.

 

[AlephZero]

A quote from an interview in today's Financial Times from Lee McIntire, CEO of CH2M Hill, a major US civil engineering group. (Two of their current projects are construction of facilities for the London 2012 Olympics, and widening the Panama Canal.)

Infrastructure investment in the US specifically [compared with the UK and Europe] has been pretty darn slow ... especially strategic infrastructure. If you take a look at China, they've put about $1tn into infrastructure. I was just in India, and they have $1tn infrastructure plan ... What [the US] did [in the stimulus package 2 years ago] was a lot of fix-up and a lot of asphalting of roads and you see a lot of activity, but not too much strategic ... Infrastructure is the key to economic development.

I guess the ancient Romans didn't think the vandals and visigoths were good for much either, and that was probably a fair assessment, given what happened a few hundred years after the Roman empire collapsed. But that didn't stop the empire from collapsing.

 

[mheslep]

A quote from an interview in today's Financial Times from Lee McIntire, CEO of CH2M Hill, a major US civil engineering group. (Two of their current projects are construction of facilities for the London 2012 Olympics, and widening the Panama Canal.)

A CEO of a civil engineering firm says, surprise, infrastructure development spending is the the key to economic development? How about infrastructure spending is the key to bubbles?
Ominous Ordos: Dispatch from a Chinese Ghost Town

I guess the ancient Romans didn't think the vandals and visigoths were good for much either, and that was probably a fair assessment, given what happened a few hundred years after the Roman empire collapsed. But that didn't stop the empire from collapsing.

Could the empire have collapsed from decadent overspending and borrowing?

 

[CAC1001]

I would say that infrastructure spending, when done properly, is key to economic growth, but there is a difference between counting infrastructure development itself as economic growth, versus infrastructure projects that facilitate economic growth later on. For example, part of the reason the American economy boomed in the post-WWII period was because of so many infrastructure projects that had been built during the Great Depression as part of the New Deal. Once totally rural areas of the country now had roads, bridges, ports, electricity, etc...and thus were able to develop into booming economies. Eisenhower's starting the Interstate Highway System I'd imagine also contributed a huge amount to America's overall economic growth over the years.

But China right now is building a whole lot of skyscrapers, apartment buildings, and so forth, and this is counted as "GDP growth," which is very questionable. Additionally, much of it is likely of shoddy quality (Google the Shanghai garbage bridge for an example).

 

[MarcoD]

But China right now is building a whole lot of skyscrapers, apartment buildings, and so forth, and this is counted as "GDP growth," which is very questionable. Additionally, much of it is likely of shoddy quality (Google the Shanghai garbage bridge for an example).

That's what I wonder about. I am not sure, if an economy is boosted full with foreign investment, and the economy mostly saves but doesn't spend -not sure whether China hardly spends,- doesn't that mean that all assets are inflated? I.e., it's just a bubble?

 

[mheslep]

when done properly

There you go. Indeed, the important question: is China doing it properly? Is, for example, $100M/mile high speed rail LA to SF proper infrastructure given the US's amazingly cheap air transport and highway system? I say no.

 

[widereader]

This is the time where Americans should be afraid of the Chinese economy. They will overtake the American economy because of the cheap labor rate in China.

 

[jduster]

What are the estimates when this will roughly happen? Are countries preparing for this transition?

This article prompted this question. And the recession.

One thing that makes me cringe is how in the future the blame game between Dems and Reps will grow much more heated.

Initially, and maybe for the next 20 years.

In the intermediate to long term, no.

Keep in mind that China had a huge population surge that it is containing. China's birth rate is decreasing significantly.

Essentially that mean in 40 or so years, China will have a huge population of people that are now in the work force, retired. The smaller population will take over and have the huge burden of taking care of that previous generation.

 

[nitsuj]

Essentially that mean in 40 or so years, China will have a huge population of people that are now in the work force, retired. The smaller population will take over and have the huge burden of taking care of that previous generation.

Not even remotely in the same sense as in the west. Taking care of the older population in the west means exponentially increasing healthcare costs with age.

 

[MarcoD]

Not even remotely in the same sense as in the west. Taking care of the older population in the west means exponentially increasing healthcare costs with age.

Like old people cost that much. I doubt the Chinese really have a tradition of sticking their elderly into nursing homes. They probably take care of them themselves and give their old their daily bowl of rice, which probably can be payed full by their elderly since Chinese normally safe lots of money.

I don't think they really have a problem. Europe might have, but worst case that means we'll need to do the same instead of providing them with these ultra-modern ultra-expensive full-care homes.

 

[phyzguy]

Europe might have, but worst case that means we'll need to do the same instead of providing them with these ultra-modern ultra-expensive full-care homes.

I take it you haven't had the pleasure of putting one of your parents, who loved you, raised you and cared for you, in one of these homes.

 

[MarcoD]

I take it you haven't had the pleasure of putting one of your parents, who loved you, raised you and cared for you, in one of these homes.

I am not against them. I meant that the demographics of Europe (aging population) might imply that that will be the end result.

 

[MarcoD]

Goldman Sachs published that China will probably overtake the US in 2025, and the BRIC countries will overtake the G7 in 2050.

Given all the bonds stuff, I am wondering whether the Chinese are manipulating the currency, btw. It's easy to cause a credit crunch/deflation by just not buying bonds.

Fortunately, it also has an easy solution. So, whatever. I wonder how interesting life is at the US's and EU's central banks.

 

[jduster]

Not even remotely in the same sense as in the west. Taking care of the older population in the west means exponentially increasing healthcare costs with age.

Even worse than the west.

Putting it into scale.

Imagine 120 people taking care of 100 people.

Then imagine 100 people taking care of 150 people.

Big difference.

 

[CAC1001]

Goldman Sachs published that China will probably overtake the US in 2025, and the BRIC countries will overtake the G7 in 2050.

Yeah, I wouldn't put much stock into such predictions though. There's just too many unforseen variables. I also wonder how the economies of Russia and Iran (of the BRIC) are supposed to match the G7. Russia is in a state of decline, not growing prosperity. They are losing people in large numbers and their economy is not modernizing. They are a quasi-fascist state run by the Russian mafia. And Iran is not a bastion of market capitalism.

As mentioned before, China I think is a bubble waiting to experience a pop (they will at some point). Also as mentioned, I wonder if they really have surpassed Japan, as much of their "GDP" I do not think is real GDP.

 

[phyzguy]

I think the I in BRIC is India, not Iran. I think it's Brazil,Russia,India,China.

 

[CAC1001]

I think the I in BRIC is India, not Iran. I think it's Brazil,Russia,India,China.

CRIPES, yeah, I should've realized that, I don't know why I wrote Iran Thanks for the correction.

 

[Hells]

No, apples with apples. Comparing 1.2 billion people to 300 million people collectively is the apples to oranges comparison.

If you want to compare per capacity rate, USA isn't the king pin anymore

 

[mheslep]

If you want to compare per capacity rate, USA isn't the king pin anymore

Rate of what?

 

[cristycs]

Dose it matter? our life is to short the best thing you can do with it is to live it to your potential, have fun or help other peoples.

 

[rootX]

Interesting article,
A Point Of View: What kind of superpower could China be?
http://www.bbc.co.uk/news/magazine-19995218

 

[SixNein]

What are the estimates when this will roughly happen? Are countries preparing for this transition?

This article prompted this question. And the recession.

One thing that makes me cringe is how in the future the blame game between Dems and Reps will grow much more heated.

You can always just do a quick and dirty estimation yourself.

It really depends upon two things:
1. The annual growth rate of the US.
2. The annual growth rate of China.

If we assume a annual growth rate of 2% for the US and 7% for China:
15*e^(t*0.02) - 7*e^(t*0.07) = 0

t=15.24 yearsIn reality, China is almost certainly cooking its books.

So my prediction is reality will catch up there sooner or later, and a loss of confidence in the Chinese economy will follow.

 

[Astronuc]

China overtakes US in number of patent filings
http://news.yahoo.com/china-overtakes-us-number-patent-filings-142532551--finance.html

GENEVA (AP) — GENEVA — The U.N. says the Chinese filed the most patent applications in the world last year, overtaking the U.S. for the first time.

The U.N.'s World Intellectual Property Organization says China's patent office received 526,412 applications in 2011, ahead of the United States with 503,582 filings.

Next year will be interesting.

 

[DrClapeyron]

Michael Pettis challenged the popular economics rag, The Economist, to a contest pitting the two's Chinese GDP forecast.

I believe some people from The Economist do read my blogs from time to time and so I am wondering whether we could set up a friendly bet — not for too large stakes, please, since my resources are limited, but just so that we can both keep up a sporting interest in the economic news over the next few years. I would like to bet that by the end of 2018 China will not be the largest economy in the world.

http://www.mpettis.com/2012/03/26/i-would-like-to-make-a-bet-with-the-economist/

I like what Pettis has to say. His arguements for a need to rebalance the Chinese economy make sense in light of growing inflation (real estate especially) and declining demand for commodities such as iron, copper and aluminum. He says the next two years will be marked by declining commodity prices which could hurt many Chinese companies, particularly those who stock large surpluses of commodities (like copper).

 

[Astronuc]

China to overhaul struggling solar panel industry
http://news.yahoo.com/china-overhaul-struggling-solar-panel-industry-030950006--finance.html

Beijing will encourage mergers, reduce government support for the industry and block local leaders from supporting domestic producers, said a Cabinet statement late Wednesday. It said some producers might be allowed to go bankrupt.

The statement gave no details but it affirmed that the communist government sees solar power as one of a series of "strategic emerging industries" that it wants to develop.
. . . .
The industry has piled up debts of some $17.5 billion, according to a report earlier this year by Maxim Group, a New York financial firm.

 

[aquitaine]

Michael Pettis challenged the popular economics rag, The Economist, to a contest pitting the two's Chinese GDP forecast.



http://www.mpettis.com/2012/03/26/i-would-like-to-make-a-bet-with-the-economist/

I like what Pettis has to say. His arguements for a need to rebalance the Chinese economy make sense in light of growing inflation (real estate especially) and declining demand for commodities such as iron, copper and aluminum. He says the next two years will be marked by declining commodity prices which could hurt many Chinese companies, particularly those who stock large surpluses of commodities (like copper).

I recently discovered his blog and after spending time in China I strongly agree with it. Their economy is hugely out of whack and it's only a matter of time before it comes crashing down.

 

[willbell]

China sees a huge gap between the rich and the poor, they have inflated values including a their real estate market that is building ghost towns, they are permanently in a state of being unstable and they rely on an enormous gap between reality and what they are trying to tell the people that will eventually boil over. By 2030 I doubt there will be much left of our China, it will have gone through a period of civil unrest and economic collapse. I would imagine it will be taking the Euro down with it and it will reassure for the world that America is indeed the world's only superpower, probably a fact for at least another 75 years after that.
Japan, Turkey, whatever survives the destruction of the EU, India, Brazil, and Russia are probably the only powers that will come close to the US in that period of time.

 

[ImaLooser]

China sees a huge gap between the rich and the poor, they have inflated values including a their real estate market that is building ghost towns, they are permanently in a state of being unstable and they rely on an enormous gap between reality and what they are trying to tell the people that will eventually boil over. By 2030 I doubt there will be much left of our China, it will have gone through a period of civil unrest and economic collapse. I would imagine it will be taking the Euro down with it and it will reassure for the world that America is indeed the world's only superpower, probably a fact for at least another 75 years after that.
Japan, Turkey, whatever survives the destruction of the EU, India, Brazil, and Russia are probably the only powers that will come close to the US in that period of time.

Right. I am CERTAIN that China is corrupt as hell, that much of their investment is foolish and/or phony, that the statistics they release are false, that those in charge don't know what they are doing, and the whole propped-up mess will crash. So projections of their current rate of growth will not be realized.

As you will notice, economic reporting has two states. 1) Everything is perfect and there will never be a problem again because economics/politics has been solved, and 2) there is no hope and current problems will continue forever. I guess this satisfies the human need for drama.

Right now the press has been getting mileage out of the Foreign Threat. They've been doing this my entire life and surely will continue to do so after I'm gone. Many people seem to need an enemy. As long as they are going to have an enemy, at least it isn't a domestic one.

What I find interesting is that the entire idea of a nation is rather new. Before that it was all tribal, with membership depending on ethnicity. Areas of mixed ethnicity were always a problem. A nation is determined by arbitrary geographic borders with membership is determined by various rules, the base rule being that anyone born within the borders is a citizen. It's a good idea. Israel and Somalia still work on the tribal model. Need I say more?

Anyway, what was the first nation by this definition? I don't know.

Albert Einstein renounced his German citizenship and moved to Switzerland in his youth. He had no passport or nationality for years. I guess people didn't take that stuff as seriously as they do now.

 

[willbell]

Right. I am CERTAIN that China is corrupt as hell, that much of their investment is foolish and/or phony, that the statistics they release are false, that those in charge don't know what they are doing, and the whole propped-up mess will crash. So projections of their current rate of growth will not be realized.

Forgive me but are you being sarcastic or just emphasizing the word certain, sorry if it is a stupid question but you understand if sarcasm doesn't carry well in written word.