US versus China: Who will own the future?

A Chinese worker in a factory in Jinjiang Will China's economy overtake America's?

Will this really be the Chinese century? Or, in our awe at what China has achieved in a single generation, do we give its economy the benefit of far too many doubts?

That was the first big question for my guests on Stephanomics this week, broadcast on BBC Radio 4 today. The follow-up was about America: for all its squabbling politicians and ballooning public debt, are we in danger of selling its economy short?

People often look at America and see a global super-power literally living on borrowed time - much of it borrowed, incidentally from China, which for all these years has been buying US bonds to soak up its massive cash reserves (now an astonishing $3 trillion).

US politics are probably more dysfunctional - more polarised - than at any time in living memory. The leading presidential contenders are in a statistical dead heat in the opinion polls and people despair of Congress getting even the smallest things done.

For the first time in the post-war era, there are fewer jobs in the private sector than 10 years ago. Real wages for the average US worker are no higher than in the 1970s. And the share of total income taken by the top 1% of taxpayers has risen from 10% to 21% between the 1970s and 2008.

And yet, as the Economist pointed out on its cover recently (see 14 July issue), there are signs that America's private sector is even now reinventing itself, yet again - just as it has so many times before.

The current account deficit is down, exports are up, and productivity has taken off. That could help sustain America's place in the global economy long-term, even if it produces a miserable jobs market right now.

Charles Dumas, of Lombard Street Research, is one of the US optimists. He's even co-authored a book called "The American Phoenix".

When I tell you that another guest, Arvind Subraminian from the Peterson Institute in Washington, has written a book called "Eclipse: living in the shadow of Chinese economic dominance", you will gather that he takes the opposite view.

When macroeconomists get together to talk about China and America, there's always a risk it will end up in a brawl over who has the biggest structural imbalances. (Piece of advice: never go to the pub with a macroeconomist who's not interested in sport.)

There was some of that on the programme, not to mention a lively debate about whether any of China's official statistics bore any relation to reality.

There's a line going around the City that "China's GDP is the next Libor" - a crucial number for the world economy that turns out to be, er, somewhat fictional.

But we also had Paul Ormerod to throw into the mix, an economist known for having a more unusual, microeconomic take on things. His new book (sigh) is "Positive Linking: how networks can change the world".

He was long-term optimistic about America as well, partly because the US does seem a lot better at innovating and creating powerful networks. But not without sizeable reservations.

It was a spirited discussion - and unexpectedly entertaining. I could barely get a word in, some of you will be relieved to hear.

But I was struck by the lack of disagreement about Europe, which all my guests were deeply gloomy about.

Paul Ormerod even thinks countries such as Greece and Spain could be facing an era of almost unprecedented "de-development", with the crisis and its aftermath reversing decades of economic progress.

That is, indeed, what many people see when they look at Europe. And looking at today's headlines, you can see why.

But when so many economists agree on something, you can't help thinking it might be time to buy some euros. When the dust settles from this crisis, years from now, we might discover we were missing the big picture on Europe as well.

Stephanie Flanders Article written by Stephanie Flanders Stephanie Flanders Former economics editor

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  • rate this

    Comment number 72.

    @67 Prudeboy. You needed to go to Sunderland in the late 70's to see a wasteland. Shipyards all but closed (most steel ships launched from there in the World). What have they got now, Nissan & suppliers, not bothered if French or Japs own them. It is work. There is no wasteland in SE England.

  • rate this

    Comment number 71.

    Mr Raj 68. You've not looked at whole of History. Ind Rev started in N.Euro, mainly UK, & was turning point for modern culture,continued by US & now been passed to Asia,etc. China made nothing to development until recent times, with production & investment. We're stagnant in the West now except we still have the people to invent, but not produce. China has long way to go to overtake, but will.

  • rate this

    Comment number 70.

    Neither! Just as the US doesn't own the present.

    It is inevitable though that China will overtake the US in terms of National GDP. India that soon after that. Why? Population stupid!

    I see no other future than a general trend towards, without ever achieving it, parity of GDP per populace. This for me is why Nations with modest popn (egUK) must join forces. What no economist can foretell is when

  • rate this

    Comment number 69.

    #62. Mr Right

    For many years the UK economy prospered as machine minders tinkered with Wool and Cotton machines as they became engineers.

    The Chinese are now busy tinkering and learning as they build up their skills.

    The Americans meanwhile had all better learn Spanish since their majority now speak it.

    American industry is mechanised and sterile.
    Chinese industry is over manned and learning..

  • rate this

    Comment number 68.

    Looking at history, it's only been since the industrial revolution that Asia has slipped from being the most advanced, remember gunpowder. I think this blip in evolution will be corrected in coming years.

    The European powers had their empires, the Americans had their super power status, but in the end money will talk and the money is all flowing now to Asian powers.

    Sa-yo-na-ra ... all ! :-D

  • rate this

    Comment number 67.


    UK manufacturing sites are now a wasteland. Coryton? now to be an import terminal.

    What manufacturing we still have is high end, niche stuff, that will soon be heading east.

    Nissan is owned by the French government via Renault.
    ICI has gone.

    What's left? - Bean counters in the City.

    And gaming software firms subsidised by you and me.
    And we are supposed to like it. - Good for us?

  • rate this

    Comment number 66.

    Agree with many, that China will have problems along the way. Not in my time, but expect India to fall from its position. Go back to comment-what have China invented! Look at Japan 60's, copied basic cars & now World leaders in their design. Then electronics. It will come with China. West are not staying ahead of the game. Now US main influence is Coke,MacD,Apple,etc. China invests in the World.

  • rate this

    Comment number 65.

    China is busily colonising Africa. To secure oil and other natural resources. CNOOC is busy buying up competitors.
    The Chinese have the manpower to crystallize their assets no matter how they obtained them. HK?

    It wont be long before home grown Chinese talent with a hunger for knowledge take on the rest of the world.

    And we will let them. Just like we allowed the $ to become reserve currency.

  • rate this

    Comment number 64.

    63 With all due are dead wrong.The USA is the Saudi Arabia of coal.It's got hundreds of trillions of cubic feet of natural gas. It may have by far the largest fossil fuel reserves on earth. It has uranium and most other minerals. It has as much of those rare earths as China but hasn't developed them yet.It has enormous arable land. It will be energy self sufficient in 5 to 10 years

  • rate this

    Comment number 63.

    The dominant powers in the future, will be the countries which have a surplus of natural resources. Like Canada, Brazil, Russia and Austrialia.
    and possibly China.

    The U S has used most of there resources and may need to import more in the future, loosing control of the cost element.

    China is buying resources all the time, Investing into the future.

    China is safest bet for owning the future.

  • rate this

    Comment number 62.

    The Chinese are very good at working very, very hard for peanuts and not much else. The US will only get worried when China rivals them technologically and militarily with kit they’ve built themselves. I can’t see that happening, or the US allowing it to happen, any time soon.

  • rate this

    Comment number 61.

    Who sent missions to Saturn, Uranus, Neptune?Who has rovers sending back pictures from Mars? Who decoded the human genome? Tell me one technological breakthrough invented by Chinese all by themselves in China.Where do the best Chinese go to learn technology and business and to gain working experience in them?And if they leave they aren't entirely all Chinese anymore, they take part of us with them

  • rate this

    Comment number 60.

    The US has the best universities, the richest Hi Tech Firms, the most advanced technologies & the deepest capital markets. And, underpinning that remains a culture of entrepreneurialism, which converts those advantages into constant innovation

    China is low tech & low wage; it is light yrs behind the US & faces decades of social & political evolution if it is to catch up.

    No contest

  • rate this

    Comment number 59.

    If it really wanted to, the US could pull the plug on China (or anyone else) at any time and there isn't anything they could do about it. If you don't believe it, just ask the Cubans. You'll get quite an earful.Truth is, the US makes much more in its GNI each year than it owes the Chinese government. It would be crazy to cut off such and arrangement.GNI is what matters, not GDP.

  • rate this

    Comment number 58.

    "U.S. manufacturing remains the world’s largest manufacturer, despite an inaccurate report in today’s Financial Times that China has passed the United States."

    Take that!

  • rate this

    Comment number 57.

    Depends on who you believe owns the present. That rules out any nationality and just leaves, that's right, the rich and their tool of oppression, the financial sector.
    China, USA, UK, Brazil, Tonga, Fiji ? Irrelevant. Just names to pin a tag on. Another good attempt at a smokescreen like the Eurozone, the war on terror etc.. Nice try though.

  • rate this

    Comment number 56.

    I had though that China had worked out a way to keep on going, simply by building almost everything to a shoddy standard, in a decade or so when it collapses or need replacing they simply rebuild it to keep the boom times going.

  • rate this

    Comment number 55.

    Up in the air and all to play for.

    If the west goes down the whole world economy will go down so it doesn't need a crystal ball to predict the chaos that would follow.

    The US would ensure that China and Russia weren't left as the dominant forces. That's just the way they are.

  • rate this

    Comment number 54.

    The UK has stopped manufacturing.
    Chemicals included.
    ~ ~ ~
    Have you looked at current manufacturing:GDP nos and gone back decade by decade to check the proportion? How much has it changed?

    Offshoring low cost manufactures is inevitable result of PM&CoE inflating UK costs. But look at high value as well.

  • rate this

    Comment number 53.

    Huh....if you've looked at the markets and newswires you'll note that US manufacturing data is not good. S&P down 1.3%. Presumably they need a new war to boost manufacturing. Even oil spot prices are down but you bet it won't reflect in our pump prices.

    Seems that what the US needs to watch out for is the formation of an alternative "global" market.


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