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Questions for the new number 2

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Stephanie Flanders | 23:09 UK time, Sunday, 13 February 2011

In Beijing they have been celebrating for a while, but today it's official: China has overtaken Japan as the second largest economy in the world.

It's easy for economists to be sniffy about "psychologically important" landmarks which are measured in dollars and cents. "Purchasing Power Parity" (PPP) estimates of national income, which allow for the fact that a dollar goes a lot further in China than it does in Japan, have put China second in the world ranking for years.

In PPP terms, Chinese gross domestic product (GDP) is more than twice Japan's; in that sense, China is already much richer than the nominal rankings suggest. But it is also much, much poorer. It may be number two by size, but ranked by income per head it is about 95th: slightly above Namibia, but behind Belize. China's average living standards are now roughly a fifth of America's. That is where Japan was in 1950.

And yet, this 'nominal' landmark comes at a time of real importance for China and its global role. Suddenly, it seems, we all care what happens to China. And we all seem to have a view on how the next stage of its extraordinary economic and political transition will unfold.

Historically, the birth of new economic superpowers has caused great global instability - and conflict, more often than not. Much ink has been spilled on how China's role will affect the global balance of power.

Some, such as the US commentator and foreign policy expert, Les Gelb, say that China will not be as disruptive as Germany or Japan were, in the first decades of their development, because China's sheer size, and poverty, mean they have to put economic development before anything else. On the other side, Stewart Patrick, writing in the November/December edition of Foreign Affairs, is one of those who warn that China could be more of a "spoiler", long term, than the White House likes to think.

These are interesting geopolitical questions for the rest of the world to ponder. I want to very briefly list the big economic questions for China and its government, as they get used to being number two.

First, does it really want to have a global currency? This might sound like a small piece of the puzzle, but it actually gets to the heart of whether China is ready to be an economic superpower. As I discussed in my recent blog about the dollar's status (link to "Exhorbitant Privilege" blog from Davos), even if China overtakes the US in terms of national output, its currency won't be a serious rival to the dollar until China opens its capital account and frees up its financial system.

Put it another way - the authorities have to be willing to not just let foreign investors put money in China, but for Chinese people to send money out. And they have to take the consequences of those inflows and outflows for the value of exchange rate. There's not much sign that the government is ready for that kind of loss of control, even if the leadership are taking small steps towards boosting the yuan's global role.

Second, does China's government really want to move to a consumption-based economy? Aside from the size of its population, the two most striking facts about China's economy are its extraordinarily high investment rate and its low consumption. China's gross investment rate in 2009 was 46% of national income, up from 32% in the late 1990s. The flipside to rising investment has been declining consumption by households, which has fallen to only 36% of GDP.

As in Japan and South Korea in the 60s and 70s, very high levels of investment has produced a large quantity of growth - but its quality leaves a lot to be desired. Hundreds of millions of people have been lifted out of poverty since 1980, but Chinese living standards have not grown nearly as fast as the country's economic growth ought to imply.

Why? Because throughout this period of rapid development, the government has put industry and exporters first. Wages and the exchange rate have been kept artificially low and, as I wrote in detail a few months ago, households have had their savings constantly taxed away, by state-controlled banks offering interest rates well below the rate of inflation - if they offer an interest rate in savings at all. (The financial system doesn't provide reliable finance for smaller private companies either, which is why the corporate savings rate is also unusually high in China.)

Again, China's leaders say they want to move to a more consumption-based economy. But as a simple matter of arithmetic, China cannot raise its consumption, or reduce its national savings rate - not to mention its counterpart, which is China's enormous current account surplus - without also reducing its rate of investment. And that is not a simple matter of arithmetic at all.

Of course, China is acquiring the external trappings of a consumer-based economy; go to Beijing or any other major city and you'll see plenty of people ostentatiously spending a lot of cash. But that is scratching the surface. For those national savings and investment numbers to change, and for ordinary households to get a larger share in the country's success, the entire axis of China's economic policy-making needs to shift, so it stops revolving around exporters and producers, and revolves around households and consumers instead.

China's leaders are not very far down that road today. Indeed, some might question whether they were on it at all.

Comments

  • Comment number 1.

    I think that in the long term China's growth can be good for everybody as it will create an enormous market for our goods. The problem is that China is using our money for that growth and it's bleading us dry. The enormous trade deficit that our and other developed economies have with China cannot continue. Something has to fail eventually. I was watching a piece on the TV the other evening about China's investment in Africa. It had a lesson for us. All of the development was done by Chinese workers with Chinese materials which means that most of the money goes back into China, not Africa. Our money stays in China. China needs to change it's policy to allow more of that money to return to our economies otherwise I believe the trade deficits are going to cause our economies to falter if not fail. That will end China's export boom and kill it's growth. One solution is for China to open up to foreign investment so that some of the gain from that growth comes back into our economies. I believe that is as much in their interests as ours.

  • Comment number 2.

    Put it perspective, we must remember that that China has been the world's largest economy for 17 of the last 20 centuries. We are just reverting to the norm!

  • Comment number 3.

    Hardscrabble Economics Part III

    THE YEAR OF THE TIGER 2010

    Looking at 2010, the year of the tiger, let us now have some light of reason about China and the Chinese people. How will our nation deal with the nation of China in the world market place? All the people of the world are watching and judging the products and services of our nation.
    While some republicans and many myopic entertainment news people here in the USA endlessly debate the merits of "big" government the Chinese continue to pump up their infrastructure and invest in the future of their nation. The historical record gives us a fitting name for those old guard republicans who delight in obstructing our government. In the 1850's the republicans proudly called themselves "Know Nothings."

    Some Chinese people I knew in Beijing in 2007 told me that infrastructure was the most important priority for their nation. There is talk by some USA cable news pundits that the Chinese economy will certainly soon "stall." Believe me, there is zero chance that the Chinese people will allow their economy to "stall." Just like the people of the USA, the people of China simply want a better life for themselves and their families.

    In our recent past we have a capitalism of government financed research into things like high-tech devices and high-speed communication and high-speed transportation. The good old gigantic US government invested in NASA (1958), and DARPA (1958), and the interstate highway system (1956). NASA gave us integrated circuits. DARPA gave us the internet. And we all must have driven forever on the Interstate commuting somewhere here or there.

    All this came about under the guidance of our good, genuine Soldier-Politician, President Eisenhower.

    Ike was our last helpful republican in the oval office.

    Yes, we do miss him don't we? Good old Ike oversaw the rise to imperium of the iconic, capitalistic American military-industrial complex.

    While our Tea Party people and Know-Nothing republicans sling slurs and pose for the cable TV news the Chinese are building... not debating... a new high-speed rail system of thousands of miles to link all the major cities of their entire nation.

    What do those Tea Party and Know-Nothing types want for us here in the USA?

    Those "keep-our-government-little-so-our-small-minds-can-easily-understand" types have only allowed the congress to budget a few miles of high-speed rail from Tampa to Orlando, Florida probably as lip service to Disney World and Mickey Mouse.

    So is our dear old USA doomed to downsize into something more "mouselike" if we continue down this path of fear and denial of thinking and doing the big ideas? Now more than at any time in the history of our republic do we need all the people to think big. The modern world is a strongly competitive place. We as a people must raise the bar and strongly get moving into the future.

  • Comment number 4.

    Sorry, but until China has 4x worth the economy of the US - as it has 4 times the population of America - with 7-8 times the GDP per capita than it has now (relative to US), it will never be on par with any of the G7 economies.

    Surely the Chinese would rather they lived like the average American in terms of living standards and income, than hear of the news that they are the world's biggest economy in a decade's time. Because stats mean nothing if you're malnourished and can't afford to keep warm.

  • Comment number 5.

    Furthermore it would be disastrous for the planet if China does become more consumerist in nature. Not only in terms of culture - I know, big business doesn't care about that - but what I see in China is millenia of a saving culture being wiped out to ape the consumerism of the West. Ironically, only now are westerners beginning to see that may not be the best option to take, and more and more and resorting to frugality not by necessity, but because they want to - call it the green movement, hippies whatever - it makes sense to conserve.

    More importantly, a consumerist China would be catastrophic for this planet. We may have already passed peak oil; America, despite many green initiatives, are still consuming more in resources than ever before; and of course China are not alone in development, as India, Brazil, Russia and other Asian econommies are reporting record growth. Corporations may love this ever expanding market, but even they must realise that eventually growth will be see as the disease that will destroy this planet beyond repair.

  • Comment number 6.

    Couldn't agree more with Piggyback. People keep rabbiting on about Chinese consumerism. OK so it does get a standard of living equal to that of Europe and the US how on earth can the resources be found? Surely we should hope that industrialization will lower the birthrate but will the two events be linked closely enough for us to survive?

    I appreciated the bit by Martin though it was more "a question for the old number one". Personally I never understood the Republican Party since Ike it does seem to be "over my dead body" type of stance. I still don't understand it, and to my unappreciative mind seems to represent a new Confederacy and have its counterparts in Britain with their stance against "the Union". Meanwhile in India and China......

  • Comment number 7.

    In value terms (the labour theory of value) the Chinese economy is already number 1.

    China spends more labour days producing commodities used as means of production & means of consumption thsn any other country.

    Much of the surplus value produced ends up in the West as a result of the artifically low exchange rate.

  • Comment number 8.

    Stephanie - picking up on one point you made, that of reserve currencies and the demise of the dollar. I read the IMF has proposed using their SDR's as an alternative global currency (which to me sounds positive) but would appreciate general comments on the implications of this for both US (negative?) and China (neutral?)

  • Comment number 9.

    A couple of points worth remembering, we were all convinced that the Soviet Union was going to rule the world, that system self destructed, we also had similar concerns about Japan and that has not happened either. The political internal and environmental pressures on China are immense and there is no guarentee that China as a state will hold together...who knows ?
    Other posters have pointed out the environmental consiquences of China moving to a largely consumer economy, I personally can not imagine this is sustainable given the population, the demographics (an aging population with a low birth rate), the environment just wont support it (1.4 billion people each with a car and a refrigerator!!) something will have to give. China is a rising force and may continue to rise, but there is no guarentee that she will not self destruct
    either

  • Comment number 10.

    As an ordinary Chinese, I'd like to say thanks to Ms. Flanders. I think all of the comments are doing no harm to China, including the complaints.
    In my opinion, all things China does, what may affect all of you, are still in the scope of traditional Chinese culture, including justice, endeavor, sacriface, tolerance and also ... a little selfish.
    However, laziness is the big problem. I always think if one works well enough, the result will never let him down, never make him more complaining.

  • Comment number 11.

    re #2
    That was based on population size of (relatively) undeveloped (industries and) economies. That is no longer the case.

    The game has changed.

    The world ceased to UK/Europe centric in the period 1900-1950. The world has now ceased to be US/Japan centric in 1950-2000.

    China has the next four decades, then it's India's turn.

  • Comment number 12.

    Regardless of the fact china has overtaken japan as no 2 economy iknow that my next tv will be japanese,my next car will be japanese,my next games console will be japanese(my kids you understand)and my next camera will be japanese.Made in china does not yet hold an attraction for me.

  • Comment number 13.

    China presents huge opportunities and huge internal problems. It mirrors the imbalance in the world.

    Hand in hand, imbalances should diminish.

  • Comment number 14.

    #2

    A very salient point that too few consider.

  • Comment number 15.

    Piggyback at 5 above opines that " ... a consumerist China would be catastrophic for this planet."
    Do I spot someone getting a piggyback from General MacArthur redivivus? If the good general had written of consumerism rather a communist conspiracy perhaps Truman would have kept him on.

  • Comment number 16.

    I can very well remember an article wrote by Fortune in 1992 where they were telling us the same sort of stories on Japan as being on its way to become the new super power. Fortune projected, as they felt, on conservative assumptions, that Japan will be passing the USA as the world's biggest economy by the year 2010, with a population only half of that of the USA on a piece of land as bug as Montana. Now we know that the US of A is still comfortably the biggest with a GBP of well over $14 trillion, whilst Japan are struggling to remain above $5 trillion. But GDP means nothing at the end of the day. China is big, very big en let us forget about GDP. It does not count in China, especially if we measure it in our Western way. Rather measure it in the number of hours worked by the total population and now I am referring to real work and assets acquired with sweat and not through asset inflation.

  • Comment number 17.

    re #12
    But your Japanese toys will have been made in China or VietNam or Cambodia or the Phillipines or Indonesia ...

    As they already are!

    As I post this I am looking at the back of an Epson printer and an old Amstrad monitor made in 2000's in Phillipines and 1980's (S) Korea, respectively.

  • Comment number 18.

    So China 'overtakes' the Japanese - so what. As 5 and 6 point out it is a success story that takes the world a little closer to unsustainability and instability. China proves that you do not need democracy to have a booming economy. The communist party of the peoples republic has produced a 'Victorian' model of economic and social development with enormous inequality of wealth and sweat shop conditions of production that millions of its population have to endure. They have gone down the capitalist road with a vengeance and the West should be raising trade barriers before such working conditions filter into developed economies.
    Had the West not been so compromised over sustainability it would be in a position to oppose China's unfettered free fall into consumerism and overproduction (as evidenced by Beijing's traffic jams).

  • Comment number 19.

    You ask 'does it really want to have a global currency?' and whether 'the government is ready for that kind of loss of control'. I'd question why it would wish either of these things. As Japan's Economics Minister commented, 'As an economy, we are not competing for rankings but working to improve citizens' lives.' Perhaps China may find it is possible to achieve this noble aim without having to sell itself and give up control of its citizens' destiny.

  • Comment number 20.

    #16 david

    David is correct. GDP as a measure suggests 'growth' in some sense of bettering oneself. It has encouraged politicians to support it and support policies that enlarge it. The truth is that GDP growth has been a measure of acceleration of private debt levels. When spending is debt funded, it is the increase in debt that describes productivity, and it is the increase in the increase (acceleration) in debt that describes growth.

    This is an unsustainable model (vix. exponential curves), that through emphasis on growth put private commercial banks and deregulated lending at the heart of it.

    We must think about automation's impact on human activity. We must think about quality of life. We must think about how to reward innovation that reduces effort, but we must not permit automation to make people's lives poorer by making the proletariat unemployed while private elites take the rewards: the benefits of technology must be somehow shared.

  • Comment number 21.

    Coming from a student that has dismissed the importance of the importants of Asian super powers for a long time, I think if China's economic growth is a scary prospect.
    If China grow to a large state, as large as there economic potential states then there could be a few disasterous results:
    Growth in military power
    A large proportion of the economy, resulting in less to share with the rest of the world
    A large use of the worlds recourses

    Now don't get me wrong, there is nothing wrong with sharing with the world. But supporting a nation 1.4/1.5 billion is just too much. But I understand, it's every country for them selves. They care about there people and you have to repsect that.
    However, I do believe there is a chance the country could collapse on its self in places, and some of the peoples estimations that I've seen on here could be correct. That they simply could not support an infrastructure this big.

  • Comment number 22.

    The EU is still holding the GDP top spot, above the US both in PPP and nominal terms - with long term growth prospects especially in Eastern Europe (Poland, Romania etc.) and a population of over 500 million.

    Economically, the US is outmatched by the EU at this point, and the EU has the advantage of being able to grow further and faster by "enlargement". Which one will end out at the top of the list : China, US, India or the EU?

    My bet is on the EU, maybe including Turkey and/or Russia.

  • Comment number 23.

    I'm not threatened by China's rise.

    If/when China's GDP matches that of the US, that doesn't just automatically mean China rules the world from now on. That's not how things work. What defines a superpower is not just economic power but military strength, scientific advancement, technological innovation, political influence, cultural reach etc... China is way, way behind the US in all those areas (despite what some alarmists or anti-Americans would like to claim). Can you imagine a day that people in the west watch Chinese TV and movies, and listen to Chinese music? I certainly can't. Yet all around the world American culture is usually more influential than the traditional domestic cultures that exist. Go to China and take note of what music they listen to. It's not Chinese, it's American. You'll see the same thing pretty much everywhere else in the world.

    Even if China reached parity with the US in all of these areas, they wouldn't "take over". The US has shared the reins of the world with another superpower before, and ended up on top. There was no doomsday. Granted, the Cold War was a dangerous time for the world. But even the thought of a Cold War between the US and China is absurd given the degree of dependence between the two countries. The US and the Soviet Union became enemies because they split the world up into opposing sides. The nature of that opposition prolonged rivalry. China and the US will probably become increasingly closer and less antagonistic towards each other, as our economies become increasingly more intertwined.

    The US needs China, everyone knows this and loves to repeat it usually to rub it in America's face. But few people ever mention how utterly dependent on the US China is. The chunk of China's economic output that depends directly on the US is far larger than the chunk of the US economic output that depends directly on China. China depends totally on the US as a source of technology, investment, and as an export partner. The US needs China to buy US bonds and as to function as a large pool of labor to manufacture products that would cost too much to make in the US. American companies tend to design and own the technology, China physically assembles it. It's mutually beneficial and will continue to be.

    The rise of China is not a threat to the US. China and the US will probably become allies over time. The people who should be concerned are the Europeans who fantasize about a combined Europe becoming a superpower. Instead of Europe stepping up to confront the US, China has stepped up to replace Europe as a 2nd-string power. I find it funny when Europeans cheer on China out of spite for the US, when China's rise has only pushed European powers (and now Japan) down a notch. China and the US are now the G2. Other powers, including European powers, are becoming increasingly less relevant.

  • Comment number 24.

    Don't we need a new Gross Domestic Product index?

    One that also shows how fair a society is. For example: Disposable Income (after housing costs) of the top 10% vs Disposable Income (after housing costs) of the bottom 10%. A type of social cohesion index - even ratings agencies have thought about this as I understand, but on the basis of this type of index the USA and China will be far down the list with countries such as much of the EU way up the top. (The UK would be down nearer the USA and China and below the rest of the EU.)

    It isn't about just GDP/capita it is also about the distribution of this income between rich and poor.

  • Comment number 25.

    re Oblivion #20 - I agree; perhaps knowing when a country has reached the top of an exponential curve equates with either having a hard or soft landing. China appears to be aware of the consequences and trying to take cautionary measures. However, your point on quality of life is the nub; could we suggest the Chinese government is (slightly) aware of this - I am thinking specifically of their desire to preserve a level of 'peace'...

  • Comment number 26.

    17. At 09:15am on 14 Feb 2011, Up2snuff wrote:

    As I post this I am looking at the back of an Epson printer and an old Amstrad monitor made in 2000's in Phillipines and 1980's (S) Korea, respectively.
    ###################
    You still have a working Amstrad monitor?

    Anyway, on point. The most astute observer and commentator I know personally is a born-and-bred farmer. He told me 10 years ago about the increasing demand for energy and food that would come from the emerging economies of China and India. He was considering that it would cause problems for the UK/Europe.

    I think we have yet to see how that plays out...with Russia and China recently agreeing to trade directly in their own currencies.

    For the US, regaining control of the global energy trade may be impossible. The military option that they used in Iraq is unthinkable against China. The Chinese have ideological politics, nuclear weapons, their own ICBM's, and both an ancient and a recent history of sacrificing millions of their own people in pursuit of their leaders' aspirations.

    The rulers of the middle kingdom have always believed that they have a right to prosper and rule over everyone else. They simply find different ways to exert that right depending on the weaknesses of their opponents. And they still feel the shame of the trade wars at the end of the 19th and start of the 20th century, and there is a long history of bad blood between them and the Japanese.

    The West's best options might be to try to forment an escalation of internal strife. A class war, or the rise of seperatist movements, or something of that ilk. But trying to out-think some of the best political strategists in the world on their own turf - would you put the West's career politicians up against some of China's statesmen? Thought not.

    What we don't want is a repeat of the Spanish Civil war, an opportunity for them to flex their military machine in a theatre war before moving onto the main event. They might well try to re-take Taiwan, and if they did, I can't see anyone stopping them.

    If they reduced Tibet to ashes, it would not be a great surprise, and eventually they may even want to block India's access to the rest of the World. Although the idea of the Chinese Empire having their turn at trying to rule Afganistan is vaguely amusing in a sick and twisted sort of way.

    Tom Clancy ("The Bear and the Dragon") described how a theatre war might play out between China and Russia over natural resources in a disputed territory. But in the book the US (of course) emerged victorious and squeaky clean. That is the only unrealistic part of Clancy's scenario.

    Not a light-hearted day today...sorry.

  • Comment number 27.

    @ Miss Flanders: You are wrong about many things on the Chinese economy. China's economy in ppp terms(almost 9.9 trillion dollars) is not more than twice the Japan's nominal GDP( about 5.4 trillion dollars). Over the last 30 years, the average real interest rate in China has been about + 1.9% a year. Negative interest rate occured only 8 times(1985,1988,1993,1994,1995,2004,2008,2010). So you are wrong in saying that the Chinese savers suffered from negative interest rate.You are also wrong saying that China's living standards have not grown nearly as fast as the country's economic growth. If China's economy grows, of course China's per capita income will increases in tandem, unless the population growth outpaces the GDP growth. I don't think that is the case with China. As for consumption in China, it should be close to 40% of GDP now. Over the last 5 years the saving rate in China has been declining. Specially the young people in ages 18-30 happen to be big spenders, because they live with their parents with free room and board. What the Chinese government is doing right now is to vastly increase the social safety net so yhat by 2020, all Chinese citizens will have good affordable health insurance and excellent pension and unemployment benifits. All these things will encourage domestic consumption. Contrary to the popular myth, exports have never have been a big part of China's economy. When you want to measure the true impact of exports on China's economy, you should use the domestically value-added net exports(the value of gross exports minus the value of imported components that are used in making export items). On the basis of the net exports, exports only comprise only about 7-8% of China's economy(fixed asset investment about 53- 54% consumption about 38-40%. I suggest that from now on you do better research, before writing an article on China's economy.

  • Comment number 28.

    Many people are convinced that China will be the next superpower or economic power but before you make any conclusion, put it in perspective. Even though China has the 2nd world largest GDP, it also has the largest population and therefore GDP per capita is extremely low. China's economy is solely based on cheap quantity manufacture rather than quality. China is still primitive in science and technology. Majority of the population are uneducated and poor. China has no alternative when the economic engine stop because no one buy her products. Internal stability depend only on the one party and if the party failed, the whole country would fall with it. So it may seem China is becoming powerful now but because of her unsustainable policies, she'll soon burn herself out very soon.

  • Comment number 29.


    Ms S Flanders

    The rubric to your 'article' today Ms F contains the expression :
    the new NUMBER 2.

    Ahem. I don't quite know how to put this, but doesn't the use of such a double-entendre risk causing offence ?

  • Comment number 30.

    Well, it's "all change" on Planet Earth.
    How long before China becomes No 1 ?
    Or how long before Chinas military becomes No 1 ?
    No-one can deny that the chinese certainly know how to work hard.
    The Chinese live to work, the West works to live.(sounds familiar, and corny).
    All the boarded-up or pulled-down factories in the UK and USA are testament to the Chinese work ethic.
    Or are they just testament to our corporations looking for the cheapest labour-deal?
    The lower pound is currently lifting our manufacturing exports...."well done" to all those successful UK manufacturers... The public know your value (whilst being sceptical about the real worth of bankers).
    But the West insists that China is operating on the back of an intentionally-weakened currency.
    Is that really the case, or are our currencies just over-valued?
    Sounds to me like we need to do some serious "quantitive easing", to devalue our currencies even further and make us more competitive with the Chinese.
    Why doesn't the government set up its own industrial bank, all with "quantitively eased" money, and give it direct to industry, manufacturers and small businesses.....just DON'T give it to those bankers.
    The "National Industrial Support Bank".......no bonuses paid!

  • Comment number 31.

    22. At 10:09am on 14 Feb 2011, Cip_V2 wrote:

    My bet is on the EU, maybe including Turkey and/or Russia.

    -------------------------------------------------------------------------

    A very interesting thought. One of Enoch Powell's less reported predictions was that the EU - as it would become - would link up with Russia to form a bloc. The other major bloc would be China allied to the USA. Those blocs would be both ecomically and militarily based. India, Africa the rest of Asia and S. America would be throw into the 21st version of the 'Great Game'.

    I wonder, is it so fanciful now?

  • Comment number 32.

    Welcome to globalism. Many comments about China, but it was the western firms that moved production or sought out cheaper production to make more profit than home made products. So rather than pin the blame on China you want to look closer to home to the big business leaders, the desire for maximum profit at any cost.
    e.g. look at Apple, big share price, but all their stuff is made in China, as are most of the pc components, I can list a multitude of items made in ghost shifts in china that a copies of what were designed and made in the west at one point.
    No one forced the US and the west for China to do this, no one forced the west to sell their debt to China . I suggest all the economists, politicians and business leaders concentrate on sorting out their own back yard rather than point at China.
    Lets face it if they really wanted to they could all stop buying from China, and stop selling their assets and commodities to China and that would stall their growth,but we all know they won't, the UK has been selling it self off for the last 40 years

  • Comment number 33.

    Re: 5
    even though china is a big consumer of natural resources, but britain and usa became rich by burning fossil fuels and other stuff . can china and india become worlds' leading economy without comsuming as much, i think the answer is no. chinese govnerment is responsible to their people, in order to feed 1.3 billion people, china left with no choice but to consume as much they could.

  • Comment number 34.

    # 22, 31
    My bets are that the following four will emerge as semi finalists:
    a. EU - including Russia
    b. OPEC - covering the islamic world footprint
    c. APEC - covering China plus Asia
    d. PE - USA, India + ABC (Aust/Britain/Canada)

    My bets on the finalists :
    a + b vs c + d
    Greens vs Oranges

    My bets on the winner :
    c + d
    Because the future is bright, the future is Orange.

    PS In case you are wondering what is PE = PlanetEnglish !

  • Comment number 35.

    Unfortunately for the Chinese, Indians and all other very populous Western Living Standard aspiring nations, what they presumably want will prove impossible to achieve.

    The tonnage of base metals available is far less than what would be required.

    This is why the Chinese are scouring the world to lock up mineral deposits.

  • Comment number 36.

    31. At 10:55am on 14 Feb 2011, LostatHome wrote:

    Those blocs would be both ecomically and militarily based. India, Africa the rest of Asia and S. America would be throw into the 21st version of the 'Great Game'.

    ------------------------------------------------------------------------

    I do not see any 'Great game' in the 21st century, just Fukuyama's end of history slowly coming to pass and GDP statistics becoming less relevant :-)

  • Comment number 37.

    #34

    Good summary. Nobody is going to prevail over the US + China and as you say they will probably suck in other partners. Canada (maybe without Quebec) and Australia look like dead certs to join that team. India could swing a different way though. Which leaves the UK with an intriguing choice of club. Will we brave enough to seize our moment ?!

  • Comment number 38.


    36. At 11:39am on 14 Feb 2011, Cip_V2 wrote:

    ...GDP statistics becoming less relevant.[End quote]

    Does anyone know what the D really stands for. I have tried to google GDP but find it hard to grasp at all the part 'D' of it

  • Comment number 39.

    Much the same observations can still be made about Japan: most Japanese over-save and the interest rate they earn on their Post Office savings accounts is insufficient to cover long run inflation. The consequence is the same as in China: an exchange rate that's well-below what's needed for a balance of imports and exports. Japan's surplus funds do not stimulate growth: they simply lead to wasteful projects at home and abroad.
    Moreover. like China, Japan adopted a low birthrate policy. In their case by encouraging abortions and one/no child families. Consequently Japan has a growing dependent pensioner ratio that is culturally disposed toward saving with Japanese institutions. And with fewer workers too. China has set out down the same path and will gradually move toward the same stagnation as Japan now finds itself locked into.

    Unless there's some radical change in direction.

  • Comment number 40.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 41.

    Stephanie Flanders.

    "It [China] may be number two by size, but ranked by income per head it is about 95th: slightly above Namibia, but behind Belize."

    interesting to see that the presence of one rich person - Michael Ashcroft - is enough to distort the statistics to such a degree.

  • Comment number 42.

    According to Virginie Maisonneuve, at Schroders it’s not all bad news for Japan:
    http://www.mindfulmoney.co.uk/3252/investing-strategy/chinese-dragon-blows-cold-breath-on-japans-rising-sun.html
    "While it is hard to see how Japan's demographic weakness could be reversed, the key for economic success can be found in part in how productive its assets are and how successful it can harness its rapidly maturing and economically successful neighbour: China's inward push - its effort to further develop its domestic demand and lower its reliance on exports - could be beneficial to Japan. China has overtaken the US as Japan's largest trading partner and the key to compensating for the Japan's weak domestic trend is in the country's own hands."

  • Comment number 43.

    #34

    Interesting - especially if you compare it to:

    Eurasia - EU + Russia
    Eastasia - China, Japan, etc
    Oceania - Americas + Uk, Australia & South africa

    With the rest of Africa and South asia as the theatres...

    If you don't recognise its 1984...

    All hail Big Brother

  • Comment number 44.

    Good afternoon and congratulation for your economy's lessons, and sorry for my poor english(i'm learning it).
    Here is my question: you say the bank ( controlled by governement) taxed away the household and corporate's savings, inducing savings rate high in China.
    I understand in the balance of the ratio savings/investment,automatically if they loose money,if real interest rate =inflation rate - nacional bank rate is negative, households will choose consumption and corporation will find productive investment, aren't they?

  • Comment number 45.

    All Chinese are adept at the numbers game only this time they own the casino and as they say the house win$. All credit must go to the greed of capatalisim! Quite shortly the decades of exploitation by the west will be in reverse!

  • Comment number 46.

    Stephanie,

    I just don't get your report of Les Gelb who said:

    '...that China will not be as disruptive as Germany or Japan were, in the first decades of their development...'

    1. China's sheer size mitigates in its favour, not against it.
    2. It has already started to build a footprint in Africa and S America that Germany and Japan have never had. Commodities will only get scarcer and whoever controls those is the driving seat.
    3. China bankrolls the US to a frightening extent. OK Japan did something similar but was politically signed up to the US cause.
    4. India's rise is pushing China to make the restructuring reforms that otherwise in the face of a stumbling US it might not bother to enact

    China and the US might well opt for the 'if you can't beat them join them' course of action.

  • Comment number 47.

    30. At 10:55am on 14 Feb 2011, stevewo wrote:

    No-one can deny that the chinese certainly know how to work hard.
    The Chinese live to work, the West works to live.(sounds familiar, and corny).

    -----------

    I don't know about you, but I have lived and worked in both the UK and China and can say without a doubt that your statement is complete and utter nonsense of the highest order. The % of lazy and hard working people in each country is about the same in my experience. I can only assume that your "knowledge" is based on what you read in The Daily Mail and the CCP propaganda releases.

  • Comment number 48.

    I'm not entirely sure if the average Chinese are "far far poorer" than the average Japanese. Goods and services are much lower in China. The Chinese currency has been speculated to be undervalued by as much as a third of its true value so the average GDP of every Chinese would rise by three times $7500 to $22500, plus lower taxation than average Japanese means that actual spending power of each Chinese is comparable to the average Japanese.

  • Comment number 49.

    #44. Christophe:

    If your question is about what consumers will do when the savings rate is less than inflation. (I hope I understand your question - may I encourage you to continue blogging in English - I try to do so in French and German so I understand your problems.)

    You think that people will spend rather than save - they may do so, but many savers are reluctant to spend and when their income fall they often save more to maintain their capital, if they can, and save more. This is why reducing interest rates does not always work at getting the economy going again.

    What happens is that savers save more and spend less. This is what is now happening in the UK. How do we know this? Because the Bank of England say they want people with savings to spend. The Bank of England would not say this is people were already doing what they wanted.

  • Comment number 50.



    49. At 1:00pm on 14 Feb 2011, John_from_Hendon wrote:
    #44. Christophe:

    If your question is about what consumers will do when the savings rate is less than inflation. (I hope I understand your question - may I encourage you to continue blogging in English - I try to do so in French and German so I understand your problems.)[End quote]

    John-from-Hendon I do the same to obtain a more wide perspective... and also in Italian. How do you find the general level of manners in the foreign blogs ?

  • Comment number 51.

    Not all countries need take the American approach in order to take tentative steps towards having the Global Currency.
    The move of the yuan as a global currency is important because it will have dramatic effects on the US dollar in its position as the sole reserve currency.
    The Chinese currency is pegged to the US dollar (for better or worse). This will likely remain so until the %'age of growth in China from exports is reduced, and they are more reliant on internal consumption.
    Longer term, the cart will be overturned.
    China is considering making its money a global currency. No one expects that to happen tomorrow. The Chinese government is wary, thinking of making some of the free-market moves that would enable the renminbi to compete along side the dollar, euro and Japanese yen as a fully convertible reserve currency.
    Over the last year Beijing has begun to loosen its tight currency controls. e.g. Caterpillar has been allowed to finance their China projects by selling renminbi-denominated bonds.
    Meanwhile, among Russia, Vietnam and Thailand, some cross-border trading with China can be settled in renminbi; trading partners do not have to convert in and out of dollars. Pilot program: lets Russian companies like Sportmaster (a retail chain in Moscow) buy or sell goods using Chinese currency.
    Meanwhile in New York, the Chinese Government has permitted a branch of Bank of China to accept deposits in renminbi. That enables depositors outside China to invest in a currency that is widely expected to appreciate against the dollar.
    At Thursday’s exchange rates, renminbi were trading just below 6.59 to the United States dollar — a level that many experts say values the Chinese currency artificially low, as a result of China's intervention efforts. Five years ago, the renminbi was trading at slightly more than 8 to the dollar. But doesn't from 8 to 6.59 seems significant to you?
    China has economic motives for trying to go global with the renminbi. 1. strengthen China’s influence in overseas financial markets and
    2. begin to erode the dollar’s dominance.
    3. China could also reap the rewards, like cheaper debt financing, that come with being recognized as a world reserve currency.
    Global importers and exporters (like the steadily complaining United States) could reduce their currency-fluctuation risk by settling China-related trade deals in renminbi rather than dollars or euros. Can you imagine the United States doing that?
    The RMB is highly likely to become a reserve currency in the future, EVEN IF CHINA DOES NOT WORK ON IT I.E. DOES NOTHING. The renminbi is already a regional currency in Southeast Asia, where China has become the dominant trading partner.
    China has been reluctant to make its currency fully convertible because its banks and financial system are still learning, growing. What is more, allowing money to flow in and out of the country with few restrictions would effectively mean surrendering control over the state-run banking system. e.g. You have to be pretty hawk-eyed to catch AAA-rated bundled derivatives sneak through your system. In this most European countries failed.
    China is also stuck with huge foreign exchange reserves — most of them in the form of American Treasury bonds which could nose-dive in the shortrun. As long as China continues tightly linking the renminbi to the dollar, the People’s Bank of China is effectively outsourcing the nation’s monetary policy to the United States Federal Reserve. And as the value of the dollar has dropped in recent years, China has a very legitimate complaint that the United States’ soaring budget deficits are eroding the value of China’s huge American holdings.
    So when the United States complains, remember China has legitimate complaints too.

  • Comment number 52.

    When people talk about the size of economic areas, whether the USA, Japan, China or Kenya, we must remember this:

    HOW are they measuring the size?

    GDP.

    IS GDP as measured today the be all and end-all of economic measurements?

    No, because even in theoretical economic systems it is flawed.

    As for the relative size of Economic Areas,

    I have long held that China's economy has been much larger than reflected by GDP's measurements, simply because of the size of its population, but if you consider foreign exchange currency values and non-accounted economic activity (eg, the young looking after the poor, instead of carestaff being paid in a nursing home), then China's economic system has probably been larger than Japan's for many years, and it may even be as large or larger than the USA's.

    Then again, never mind the size of an economic system, but consider the quality.

  • Comment number 53.

    The magic word here is sustainable:

    Is it financially sustainable for China to have a currency that is not convertable?

    Is it sustainable to suck in vast quantities of foreign currency?

    Is it sustainable to the planet for China to start consuming the same level of resources as the developed economies do?

    Is it sustainable to suck in natural resources in terms of minerals, energy and food from the rest of the world?

    Clearly the answer to most if not all these questions is going to be no.

    Therefore the issue will be which part of the current model will break first?

    I'd say the western economies will eventually take action to limit imports from China - or there will be a meltdown in the financial system - e.g. the dollar plummets.

    Then there's the risk of internal dissent taking over in China - either for freedom or against low/falling living standards.

    The Chinese old guard are doing very nicely out of the current situation, but the legacy they will hand to the next generation is in many ways a poisoned chalice, having ripped large numbers of people out of sustainable subsistence agriculture into unsustainable industry.

  • Comment number 54.

    re #34
    I assumed it meant Past Empire!

  • Comment number 55.

    26. At 10:48am on 14 Feb 2011, stillpuzzled wrote:

    "But trying to out-think some of the best political strategists in the world on their own turf - would you put the West's career politicians up against some of China's statesmen? Thought not."

    -----------

    Which Chinese statesmen? And which Western politicians? And what do you mean by "put them up against"? You seem to be making a vague implication that China's political leaders are somehow better than those in the West - using which criteria? From what I've seen China's leaders are useless politicians, good strategically at building an economy from the bottom up, but wouldn't last 5 minutes as politicians in a Western democracy. Do you think any of them would be as successful managing the UK economy, where you have to do the popular thing rather than the right thing to survive? Then again, it seems they do know how to get their noses in the trough so perhaps they would fit in at Westminster...

    http://www.bbc.co.uk/news/world-asia-pacific-12440198

    --------------

    26. At 10:48am on 14 Feb 2011, stillpuzzled wrote:

    What we don't want is a repeat of the Spanish Civil war, an opportunity for them to flex their military machine in a theatre war before moving onto the main event. They might well try to re-take Taiwan, and if they did, I can't see anyone stopping them.

    --------------

    According to reliable reports it could be at least another 30 years before China is in a position to be able to re-take Taiwan militarily, assuming their current growth rate in military spending and considering the amount of US hardware Taiwan has. I think we are more likely to see Chinese tanks being used on the mainland against unhappy Chinese citizens long before they start launching rockets at Taiwan.

  • Comment number 56.

    re #26
    Yes, a gloomy thought. The Chinese leaders are balancing things at home on a very fine thread. If they fall off or the thread snaps then anything is possible if/as they try to re-gain control. Assuming they survive. It is true that the traditional response to trouble at home is to start a war with an external foe.

    I am thinking that the bigger possibility would be a civil war or perhaps several civil wars all going on at once with the rest of the world plunging in, weaponless, trying to calm things down and pull the combatants apart.

    That said, I am sure it is not lost on the Chinese leadership that affluence and the prospect of prosperity is more enticing to the majority of the world's population - Chinese included - than going off to war. (The US, for example, are already fighting via remote control in Afghanistan.) So the Chinese leaders will be more interested in meeting those aspirations while keeping the disparate ethnic groups at peace with each other and happy to be hanging on to the coat-tails of those becoming rich in the east of the country.

  • Comment number 57.

    #49 JFH - Not only is this theory not currently appropriate for the UK, it has never been appropriate in China.

    The average citizen of China doesn't save money (rather than spend it) because they're getting a good rate of return, they save so they don't have to live their old age in destitution and can afford to feed themselves should they ever become sick and be unable to work. It's a matter of survival not a lifestyle choice.

    Those in the UK complaining (with justification) about cuts to housing benefit, unemployment payouts and the switch from RPI to CPI for their pension indexing might feel less hard done by if they realised that there is very little of any similar such provision in China. When you get old and/or can no longer physically work you'd better have either the money to look after yourself or a big family instead.

    The dream that the Chinese will suddenly become spenders and step in to replace the reduced consumption of the embattled Western consumer is laughable - unless the CCP is proposing to construct a welfare state in the near future. A small minority of filthy rich will be buying luxury goods of course, nice for Western based luxury handbag or whiskey makers perhaps, but the rest of the population will be putting their disposable income aside for when they really need it.

  • Comment number 58.

    #50. Amused2Death wrote:

    "John-from-Hendon I do the same to obtain a more wide perspective... and also in Italian. How do you find the general level of manners in the foreign blogs ?"

    Hmm, that is a tricky one - I don't always know when manners are less than good as sometimes I feel that people are being more polite and forgiving of grammatical errors to a foreigner than they would be to a native - that is my experience with the French. My German is worse than my French and sometimes I commit real howlers to the point of being incomprehensible! Quite often native bloggers will also slip into English and I do feel ashamed that the British do not try more to communicate in any language other than English - and British English at that! My French is good enough (or rather used to be good enough!) to give directions in Paris to people from the banlieue (and other places outside Île-de-France) and they not immediately know that they were not receiving directions from a local! I do (still!) mess up the polite and formal use of the subjunctive and other grammatical forms. I read Le Monde regularly and of course Le Canard Enchaîné!

    Perhaps your Italian is better than my French, but do you find the Italians are rude to you - I guess if your Italian is native you will get treated like a native!

    As to a different 'perspective' - in may ways the French and the English are very similar - or should I say that the economic attitudes of French bloggers is not too different from mine, or I tend to read news and information sources that reinforce my own prejudices in either language! Like snails we carry our prejudices and opinions with us! (I have an 'opinion' - you (not personally) have a 'prejudice'!)

  • Comment number 59.

    55. At 2:34pm on 14 Feb 2011, davidbrent wrote:
    Which Chinese statesmen? And which Western politicians? And what do you mean by "put them up against"?
    --------------
    Aha, a bite...
    various US and UK media reports on trade missions, foreign envoys and finance ministers all indicated that the Chinese play hardball better than we do. They may have corruption (but that is unchanged from the first dynasty) and we may have senior civil servants who are good at "the great game". (But the nature of the game is that such people would never be in the forefront of the come to the public gaze.)

    Chinese politicians also are not constrained to the short-termism of "5-years or less to show an improvement to the public", so can make sensible policies.

    The two-faced nature of populist politics in the UK means that no hard choices can be made without a general clamouring from the assorted lobbying groups who feel "hard done by". Consequently, UK politicians who actually wat the best fot the country are constrained to prevaricate and smoke-screen in order to achieve change.

    What I think we we can say from the economic data of the last few years is that western capitalism has been led by the nose into a reliance on asian manufacturing which has not prospered the west.

    Where were the diplomats who would have ensured equity in IP rights, cross-border tariffs and quotas and conscessions on late-term abortions and political prisoners? What were they doing...fiddling while Rome burned?

    So...educate me. In what diplomatic mission to China has anyone or any nation from the West come out with an overall advantage in the last 50 years?

    ###############################

    According to reliable reports
    ~~~~~~~~~~~~~~~~~~~~~
    Which reliable reports? :)

  • Comment number 60.

    #59 Stillpuzzled,

    "What I think we we can say from the economic data of the last few years is that western capitalism has been led by the nose into a reliance on asian manufacturing which has not prospered the west."

    What a strange interpritation of both the fugures and the facts! There was no "leading by the nose", Western Capital ran gladly towards a low cost benefits irrespective of the long tern consequences. It took no diplomatic or negotiating expertise!

  • Comment number 61.

    #57. davidbrent wrote:

    #49 JFH - Not only is this theory (Savers save more when you reduce their income from savings) not currently appropriate for the UK, it has never been appropriate in China.

    I disagree with regard to the UK. The facts I call upon to support my 'theory' are 1. the economy has not picked up since interest rates have been reduced to nothing and 2. MPC members keep making speeches imploring savers to spend - and this can only mean that savers are not spending - for if they were spending MPC members would not be so worried that their theory (and yours?) is at variance with the facts. The 'Fools' have got it wrong again because their theory does not work!

    As to China - interest rates offer a decent rate of return so it does not apply.

  • Comment number 62.

    The problem with China now is that if anything is going to destroy its economy, it will probably be its policies with the one child one family and its continuing problems with the environment.

  • Comment number 63.

    And there is the solution. Do what's best for YOUR Country and ignore what any other country/court/group says. Us in the West are now too caught up with trying to please everyone and not step on anyones toes. Eventually it's our countries that get left behind whilst the other prosper. Yes, we have the moral high ground, but how long will that last.....

  • Comment number 64.

    60. At 4:01pm on 14 Feb 2011, foredeckdave wrote:

    'Western Capital ran gladly towards a low cost benefits irrespective of the long tern consequences.'

    -----------------------------------------------------------------------

    Personally I think you and 'still puzzled' are both correct. Business Leaders here did not act like citizens, they just treated the UK as a 'pad'. Encouraged by the likes of Sir Diggers, they off-shored production claiming that the intellectual parts of the business would stay in the UK. I can't believe they actually believed that, even they are not that gormless. Even less do I believe they thought the population as a whole could live from the remaining 'brains' and spend their time money shuffling. The only conclusion I can draw is that the Western elite, by and large acted, as one and acted solely for their own benefit. Democracy - what democracy?

  • Comment number 65.

    Several contributors here have suggested that the China's miracle will follow Japan by ending in stagnation and worse. They have not been to Japan lately. Japan has not hit the wall. Far from it. As I have documented in various books, Japan is today more dynamic than ever. This is obvious not only in super-high living standards visible to any visitor but in the same trade yardsticks that were rightly of such interest to Western economists in the late 1980s. After all – even as it has faced ever more sophisticated competition from Korea, Taiwan, and Germany, among others – Japan boosted its current account surplus threefold between 1989 and 2008 (the last year before the global financial crisis threw everything temporarily out of kilter). By contrast America’s current account deficit has ballooned six-fold.

    A particularly interesting test is Japan’s exports to China, which have powerfully outperformed America's. The result is that whereas the United States runs a vast bilateral deficit with China, Japan’s trade is balanced (indeed on China’s numbers Japan actually enjoys a small surplus). Underlying the diverging U.S.-Japan trends is an epochal fact: Japan has now comprehensively, if invisibly as far as the Western public is concerned, established itself as the world’s main and, in many cases, monopolistic supplier of the most advanced manufactured products. America’s previous position as the world’s dominant source of such goods had, of course, been the foundation of American power. As recently as two decades ago, Japan was still merely the challenger and the United States still boasted countless advanced manufacturers which, though already troubled, were at least still alive and, given suitably firm U.S. trade policies, might well have been coaxed back to a full recovery.

    The only precedent for America's current predicament is the implosion of the Ottoman empire in the nineteenth and early twentieth centuries. The difference is that America's implosion is far faster. Those who profess to see an upside for the American economy must answer some epochal questions. How low, for instance, would the dollar have to fall against the currencies of East Asia -- not just the yuan, but the yen, the won, and the Taiwanese dollar -- before America can balance its trade again? Anyone who thinks he can supply an answer probably has not understood the question.

    The fact is that in a normal year now the U.S. current account deficit runs between 4 and 6 percent of GDP. Meanwhile manufacturing is down to just 11 percent. Given that service industries are hopeless exporters, it is obvious the United States will never rebuild the muscle necessary to close the trade gap. It is the United States, not Japan, that has become a basket case in the last two decades.

  • Comment number 66.

    60. At 4:01pm on 14 Feb 2011, foredeckdave wrote:

    What a strange interpritation of both the fugures and the facts! There was no "leading by the nose", Western Capital ran gladly towards a low cost benefits irrespective of the long tern consequences. It took no diplomatic or negotiating expertise!
    ~~~~~~~~~~~~~~
    I thought it depended whose side we are looking at.

    There has been a marked shift in diplomatic and trade policy from the asian block from "closed" to "open" in my lifetime.

    Why that policy changed, who hoped to benefit for the long term good of their nation/population, and under what terms the new trading arrangements were negotiated were, I think, products of politics and diplomacy from the Chinese point of view, if not from ours.

    The fact that the west has permitted Business instead of Government to dictate policy is something we have all bemoaned on this blog.

    But hey, I'm not having a good day. Happy to be enlightened, as always.

    Thanks

  • Comment number 67.

    @57. At 2:57pm on 14 Feb 2011, davidbrent wrote:

    “The dream that the Chinese will suddenly become spenders and step in to replace the reduced consumption of the embattled Western consumer is laughable - unless the CCP is proposing to construct a welfare state in the near future. A small minority of filthy rich will be buying luxury goods of course, nice for Western based luxury handbag or whiskey makers perhaps, but the rest of the population will be putting their disposable income aside for when they really need it.”

    Hmmm.....I continue to be dismayed by the lack of understanding about China. For fuller details see the following link which includes links to various analyses of China’s economy, including the article about PPP by Arvind Subramanian:

    http://www.eastasiaforum.org/tag/china/

    Briefly, it’s useful to recognise that net exports have contributed on average ~1.5% to China’s growth over much of the past 10 years. And the US share of that is about 20% i.e. about 0.3% of GDP growth. That’s growth that has been running in double digits for quite some time, despite the GFC. Much of what China exports to the US is low value-added clothing, toys and electronics. High value-added goods e.g. power stations, mining equipment, are exported to developing nations and represent about half of China’s exports. Domestic demand is massive and growing e.g. more cars are sold in China now than in the US, against a background of 3% market penetration, 80% first-time car buyers, and 90% cash buyers. Although ~400 million people have shifted to cities over ~30 years, about the same number are expected to move to cities over the next 20 years. Urbanisation has some way to go, which means massive and sustained business expansion including building and construction, rail networks, airports, urban transport, services and attendant environmental challenges accompanying increased consumption and urbanisation. Such massive changes are in stark contrast with many other nations.

    Interested individuals can find more analysis and details here:

    http://www.lowyinstitute.org/Publication.asp?pid=1242

    http://www.investecassetmanagement.com/server.php?show=ConMediaFile.5359&navId=2468

    It’s important to appreciate the scale of China’s development. The numbers are big. And it’s also important to appreciate that other social, political and cultural changes with almost certainly accompany this development. That is the interesting debate, because unlike the economic story, the likely nature of those changes is neither immediately obvious to me nor many others, including apparently China’s leaders:

    http://www.ft.com/cms/s/0/233f88aa-361b-11e0-9b3b-00144feabdc0.html#axzz1DxGuu8ll

  • Comment number 68.

    65. At 5:07pm on 14 Feb 2011, Eamonn Fingleton wrote:
    ------------------------------------------------------------------------

    Sir, what an excellent piece. Japan in its business culture and economic management is indeed NOTHING like the USA. China is unlike the USA and it is exactly as you say that it is the US that is in grave trouble and not Japan.

    I cannot marshall the numbers that you have, but from dealing with US businesses compared with Asian ones in general, the US organisations appear inefficient, slow and lacking in spark. Its not that individuals don't put in the hours - they do - but much of it seems to be going through the motions. There are big exceptions on the West Coast but industrial America seems to be lost.

    Your point about service industries is spot on. Furthemore, with the need for innovation and generally low barriers to entry they tend to follow the industries they serve. It is not a model for Western revival.

  • Comment number 69.

    @65. At 5:07pm on 14 Feb 2011, Eamonn Fingleton wrote:

    Yes. The lack of understanding about Japan is.....slightly odd. And I suppose you could say the same about the condition of USA. Maybe it's because we have placed such emphasis on one side of the story for so long. Foolish.

    PS I have friends who have moved to Japan to live and I have also considered doing so.

  • Comment number 70.

    #59 But your premise is that The West has been beaten in some grand global economic chess game by China, when in reality it has so far been a partnership between Western capital looking for a cheaper work force and the Chinese Communist Party faced with almost 1.5 billion mouths to feed and off the streets armed with petrol bombs.

    That's why I asked what you meant by "put them up against" - I don't think anyone at that level is going up against anyone. Western politicians have performed very well doing what their remit is, which is to protect the interests of the Western rich, whilst China's politicians have done what they are required to do, which is to keep the one party dictatorship afloat.

    I disagree that China's politicians don't need to keep their own people happy - they most certainly do. It's just that they wouldn't ever be ousted by the ballot box, it would be a method less democratic than that. I'm sure the authorities right now have one eye on the Middle East uprisings and one finger on the off switch for the internet (just in case). But indeed they are a different breed to our lot, having never had to smarm the general public to get to the top and not being used to debating in a hostile environment (the CCP politician who once appeared on a special Question Time was quite bamboozled that members of the public actually disagreed with him and expected a reasoned argument rather than just a refusal to discuss a question he didn't like).

    As for Taiwan, the figure of around 30 years was mentioned in a Newsnight report regarding Chinese military spending and I have also read similar figures stated in other media although I can't provide any links. Obviously it is not a scientific measure since who is to judge how much force is necessary to conquer a particular territory. The general point is that Chinese military spending is still a long, long, long, way behind that of the US and really isn't that high for a country of it's apparently growing importance, and that quite some time and money will be required before they could confidently and easily overrun Taiwan (assuming they put up a fight).

  • Comment number 71.

    70. At 6:15pm on 14 Feb 2011, davidbrent wrote:

    ...that quite some time and money will be required before they could confidently and easily overrun Taiwan (assuming they put up a fight).
    ~~~~~~~~~~~~~~~~~
    Interesting debate, and definite humour in the last point.

    The last time I looked, Taiwanese politics was dominated by three parties, those who want to re-unify with the motherland, those who want to re-conquer the motherland, and those who want to maintain an uneasy truce.

    (Made a refreshing change from New Labour vs Conservatives.)

    Given the right US/CCP trade arrangements, and a significant political swing, Taiwan could end up a small fish in a shark pool...and might not get the support they expect. At which point, as the saying goes "resistance is futile!"

    Ah well, another day, another spleen vented.

    Thanks

  • Comment number 72.

    Good article. I think we do need to put things in perspective with China, as some people are already talking of 'When' it will overtake USA as #1 superpower which is jumping the gun a little. China is still a very poor country which a lot of people seem to forget. Its education system is vastly different to the west, the Chinese people are very hard workers but lack imagination and creativity. The country lacks its own resources, its economy revolves around producing CHEAP goods in factories. Already workers have been going on strike demanding wage increases. The problem is as the economy grows wages WILL increase making goods produced in China more expensive. In our globalised world production will move to the cheapest country, ie India, Vietnam and evetually Africa.

    China's labour is vastly ageing, in the West we talk about an aging population and the risks now what about China, average births per female pre 1980 = 5 babies. Post 1980 = 1.8 babies. In the not too distant future your going to have far more retired people than working.
    IMHO China has a long way to go before becoming an economic and World superpower. I just cannot see it happening in my lifetime.

  • Comment number 73.

    67. At 5:29pm on 14 Feb 2011, Duxtungstu wrote:

    Hmmm.....I continue to be dismayed by the lack of understanding about China.

    ----------

    Which part of my lack of understanding dismayed you in particular? None of what you wrote is incompatible with my claim that the average person in China will not suddenly stop saving and start consuming imports because they are more concerned about providing for their future than spending now and assuming that the state will look after them in their old age.

    The East Asia Forum article you linked to is a very dry and academic piece, but I'm going on the evidence of my own experiences and from what I've been told by real people in different parts of China. I've lived in Shanghai, I've witnessed the wealth and consumerism in that city as well as working in some of the rather less wealthy regions - I'm not trying to portray China as some economic backwater, I'm well aware of their development. But there is this fantasy that there is a ready market of 1.5 billion consumers ready to go crazy on their credit cards and save the world economy. Most of the population are not rich by anyone's standards and given the lack of a welfare state still feel the need to save for a rainy day rather than buy a new iphone every 6 months.

  • Comment number 74.

    71. At 7:13pm on 14 Feb 2011, stillpuzzled wrote:

    Interesting debate, and definite humour in the last point.

    --------------

    Yes interesting indeed, though I do tend to go on about it a bit given the chance. I say assuming they put up a fight because who knows how things will have changed by then. They might, as you point out, be a small fish and realise that they're better off "merging" with the motherland especially if the political system on the mainland has evolved to be more to their liking.

    And it is still (or at least it was until recently, at least up to the end of martial law) government policy that they will one day retake the mainland. This was realistic just after the Communist takeover, when Taiwan was recognised internationally as the official Chinese government but I suspect that is slightly ambitious now. There is a great deal of commerce and family connections between the two, yes it is an uneasy relationship but there's some commonality also.

    But Taiwan does not see itself historically as "belonging" to the mainland, despite what the Communist Party claims. A large part of the population are not ethnically (Han) Chinese and the Chinese Nationalists were required to oppress the native Taiwanese under martial law following their retreat after defeat to the Communists. They value their independence and will not surrender easily unless events force their hand.

    Anyway, thanks for engaging me in one of my pet topics!

  • Comment number 75.

    "........as I wrote in detail a few months ago, households have had their savings constantly taxed away, by state-controlled banks offering interest rates well below the rate of inflation - if they offer an interest rate in savings at all. (The financial system doesn't provide reliable finance for smaller private companies either, which is why the corporate savings rate is also unusually high in China.)"..................

    This IS a no-ball free hit I guess Steph....so I'll take a swing and bang it over the ropes...

    It's hard to imagine any sophisticated Western Society and economy putting up with ths state of affairs ---- State Controlled Banks paying interest rates below the rate of inflation..... NO way!

    The next thing you'll be telling us is that in China the bankers are paid uncountable Millions of pounds by the Government for providing this non-service .... If you are going to write Blogs at least keep it believable!!!

  • Comment number 76.

    When you compare China's population with America's, 1,300,000,000 to 300,000,000, it is easy to see that China will not just become the richest country but by a huge margin assuming India is slower growing in wealth. China's growth can remain in double digits for years yet whilst the growth uses up some of the many hundreds of millions of Chinese still living a peasants life in rural China. Of course as China grows the west declines as we have nothing the Chinese want once their aircraft industry and similar develops to match ours, and it will shortly.

  • Comment number 77.

    I understand China perfectly.

    They're after political world domination and we're stupid enough to help them on their way by giving them all our wealth. Time for a rethink and a little bravery.

  • Comment number 78.

    @73. At 7:42pm on 14 Feb 2011, davidbrent wrote:

    In the light of your reply David I obviously misinterpreted your meaning. And I agree with you that a substantial proportion of the population will probably never fully share in the benefits of this economic boom, but will no doubt be called upon to shoulder much of the burden. Nevertheless, although you have personal experience of China many commentators do not and their understanding and assessment of the scale of what is happening is consequently hindered. Hopefully, you can forgive my own lack of understanding of your comments.

  • Comment number 79.

    Eammonn Fingleton

    I think that's clear to most regular contributors, but what is worrying is why it is not made clear in the regular economics commentary supplied by the BBC and other media.

    We are constantly bombarded with talk of a "recovery", as if it was something that anyone actually wanted or thought was achievable. They spout nonsense about China being a potential global engine of "growth".

    I think many were hoping that this financial crisis would present opportunities for new methods of running societies, new ways of doing things, and facilitate progress. Unfortunately world leaders have failed us and are still fighting the forces that represent the status quo.

    The imbalances can be rectified, but we need global governance and better ways of measuring things to encourage improvements in quality of life. We need systems that reward the elimination of malaria, not mass production of pink iPods. We need systems that encourage abundance, not reward private investors who manage scarcity.

    The world is a fertilised egg. It is forming organs. It has developed physical transport arteries. It has recently formed the beginnings of an electrical nervous system. It can compute and recognise. In order to survive its birth, it needs to learn how to find new sources of energy, and its governing, computing capacity must learn to integrate and coordinate.

    The USA exports the USD, and the USA is the main beneficiary of that system. The USD is intimately tied to oil. The basket case here is the petrodollar based system, and so to finally add to your original post, the problem extends further than America's borders.


  • Comment number 80.

    David Brent, I'm afraid your "reliable" source is a misguided one about China's ability to take Taiwan militarily. Do you know how many times PRC navy has intrude into Taiwan's territorial waters in the past 12 months without opposition?
    China can take Taiwan easily even 30 years ago by using vast numerical superiority. The only deterent is largely keeping good relations with US and demonstrate to other countries that China wanted peace. The position of China is should Taiwan declare independent the mainland will take the island by force and would complete the task in a few weeks with minimal infrastructure damage because only military target would be hit.

  • Comment number 81.

    #63 Dinesh Patel,

    There is a lot of truth in what you say. However, unless or until our political leaders prise themselves free of the stranglehold of financial globalisation it will never happen.

  • Comment number 82.

    78. At 8:36pm on 14 Feb 2011, Duxtungstu wrote:

    Hopefully, you can forgive my own lack of understanding of your comments.

    -----------

    No problem. It's easy to get crossed wires when discussing in this environment, and I appreciate your reply. I'm certainly no expert and there is probably much about China that I misunderstand, it is after all a vast and complex country with a long history. But I only ever speak from my own, admittedly limited, experiences and how I truthfully see the situation. I have no axe to grind and in the main have only positive memories from my time in China so their development intrigues me and I always feel the need to comment whenever the subject is raised.

  • Comment number 83.

    #80 hizento

    I havn't done any detailed research on China's military myself so I can only go on what I read or hear reported, filtering out the bias the best I can. Looking at your own posting history you seem to have a track record of "bigging-up" China's military capabilities so we have to take your own claims with a pinch of salt.

    Do you honestly think that "intrusions" into Taiwanese waters without opposition means anything? Do you think the Taiwanese would begin firing missiles and risk starting a conflict in such instances? Of course not, but that doesn't mean they wouldn't be capable of putting up a defence if needed.

    I agree that it is in all parties interests to maintain the status quo rather than engaging in a pointless and unnecessary war. Taiwan would be foolish to declare independence - why would they, they are effectively independent already, they don't need to declare it. We can have a debate until the cows come home about whether Taiwan is historically a part of China, but the fact is that right now Taiwan is a soverign nation even if China and most of the rest of world don't officially recognise it.

    China might very well be able to overpower Taiwan by sheer force of numbers in a few weeks if they were willing to suffer significant casualties but I wouldn't call that easy. I wouldn't put it past the Chinese leadership to try such a stunt as propaganda if they felt they needed to, but I also recognise they are very pragmatic and, unlike some other nations, not historically prone to delusions of military grandeur. They are more likely to seek closer ties by greater economic inter-dependence and an eventual natural merging when the time is right. War is not the answer.

    This makes it all the more depressing to hear people such as yourself jingoistically boasting of China's military prowess in a manner we would normally expect to come from those over the pond, whilst at the same time telling us China wants only peace.

    Personally, as someone living in the UK, I'm not worried about their military build-up. If they ever do feel willing and able to start flexing their muscles I suspect there will be bigger battles to fight nearer to home before they start seeking vengeance for 19th century drug wars, so I'm really not expecting Chinese bombs to start falling on me in the near future. I'm hope I'm right obviosuly.

  • Comment number 84.

    Totally unconnected to the thread but can stepanie find out why there is a nearly $20 spread between brent and west texas oil prices. it can't ever have been anywhere near this. Who's speculating?

  • Comment number 85.

    #80

    You are correct. The PRC would be able to overwhelm Taiwan today if it so chose. Mao (I think) was asked what he would do if the Soviet red army invaded with their vast superiority in tanks. His reply was that he would drown them in people (his own). So it is now. The question is whether the US would fight, not if the Taiwanese would. And the answer is no, no US president is going to risk all out war with a major military power over a third party country. Its the same position as for the Baltic nations facing the CIS - and was of course for Georgia.

    Military ability is a function of 3 parameters: numbers, motivation & ability to accept casualties and technology. China scores very highly on 1 and 2 and is catching up (often by Wiki theft) on 3. The US scores less on 1 and 2 because of its committments elsewhere (I'll bet the PRC is content with the US's luidicrous war in Iraq and quagmire in Afghanistan).

    As other posters have said, the US is far more likely to resort to attempted internal destabilization of China. Its a pretty homogeous (Han)country but of course the Mongols and those in the far West and in Tibet are not part of that family.

    As I said before, my personal view is that China and the US know they could fight each to a standstill both ecomically and militarily. So they would link up. And out of that the Chinese would emerge as the senior parner.





  • Comment number 86.

    There really is a great deal of of speculation regarding China in many fo the above posts - especially in relation to internal dynamics and military capacity.

    Nobody really knows what the social future of China will be. I doubt that even the Chinese know how the rapid development will effect social attitudes in the future. I would suggest that the old norms of even Moa's time are now under extreeme pressure.

    As for Chinese military capability we have to accept that hardware and tactics have changed considerably since say the Korean War. Human wave tactics would not now succeed. The USA may have involved itself in limited warfare since the Korean War but it does have the advantage of knowing that its equipment has been 'battle-tested' unlike that of the Chinese.

    Economically, where does China go from here? Inflation in China is now admitted as being 5%. Again, I doubt that even the best government administrators have a real idea of the effects that contiinued inflation will have on the Chinese economy.

  • Comment number 87.

    The middle kingdom has always considered itself as the centre of civilisation.The sleeping giant has woken up after a long slumber.It is trying hard to regain its earlier position through absorption of modern technology.Its approach to interaction with rest of the world is cautious and pragmatic. It looks Chinese are quite astute players in the power game. Their behaviour at times is quite enigmatic but it seems to be driven primarily by relentless pursuit of national interests. Ideology plays only a cosmetic role. Chinese are too shrewd to risk their developmental goals by getting involved in major conflicts,at least in the near future. Nevertheless, they are likely to increasingly use their economic muscle in pursuit of their national goals while building their fire power.They would use aid and trade to access secure sources of raw materials like developed countries.
    They are unlikely to bring drastic changes in pattern of production or foreign exchange regime as these would be too disruptive and risky.
    In all probability,they would follow the middle path and let economy evolve through institutional adjustments over time.
    It does not mean that they will never use their force against creditable contenders in the global power game.
    On may hope that they learn the art of 'live and let live' as they become stronger by the day.



  • Comment number 88.

    87. At 11:19am on 15 Feb 2011, Autar Dhesi wrote:

    Is that BS for ... don't trust them?

 

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