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

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  • rate this

    Comment number 92.

    89The USA is saturated with cars and trucks.There's approximately 250 million registered passenger vehicles compared to about 310 million people.Thats about one vehicle per person of driving age.As they have become more reliable (yes US cars too)the need to build more of them has diminished.If we need more, production can easily ramp up.New and used car lots are filled up with unsold unregistered

  • rate this

    Comment number 91.

    > 83 space does not permit me to correct all of your mistakes

    No, it's the facts.

    By the way, the smiley might have given something away with 'democracy or the wheel:)'

    fyi - China mass produced the terracotta army; UK had mass production during Napoleonic wars.

    There's lots that's good in the USA but pride comes before destruction. I don't want to see it happen.

  • rate this

    Comment number 90.

    At present the US has the advantage of having its currency, the $, as the reserve currency.

    That gives it massive advantages. Massive.

    But for how long?

  • rate this

    Comment number 89.


    And who is now the biggest auto producer?


    So, it's China, according to Wikipedia.

    But American cars are four times the size and drink 10 times the fuel, so the US wins again!

    Sorry folks, the US is fine really, in many ways, but some USAmericans display unhealthy arrogance levels - which really could harm their future.

  • rate this

    Comment number 88.

    83 space does not permit me to correct all of your mistakes with references.It isn't clear who invented the wheel or fire but China has both now.Will they catch up to Europe...or will Europe instead fall behind China? Only time will tell.Who in Germany would want to live in China even though China's economy is larger?China has the resources of 1.2 billion people, the USA can attract all 7 billion

  • rate this

    Comment number 87.

    It does does not matter who invented what its who ever makes money out of it that rules the roost along with where ever the materials come from eg rare earth, iron ore, copper etc. Dont forget that China does not need to import manufactured goods so buys resources & utilities companies world wide.

  • rate this

    Comment number 86.

    68Raj Blake

    Yes, it's good to take a longer view. Recall ancient Rome, Greece, Egypt as well as India, China, etc. Some lasted far longer than others but all fall one day.

    But, just continuing a trend line into the future will soon go off track as previously hidden or ignored processes come into play. e.g., an earlier poster mentioned demographics. Age and gender profiles of China bode ill.

  • rate this

    Comment number 85.

    There are advantages in coming along late.

    And who is now the biggest auto producer?

    What was it that Napoleon said?
    The Chinese are like a sleeping giant best left asleep.

    I think it was Napoleon. But who cares?

  • rate this

    Comment number 84.

    Bigger question is will the US & the West realise that China is close already to winning this race. We all should know ownership of the world resources is the key to winning this contest. Australia has already sold out already. What ever happens to resources in the short term China will continue to buy up as purely an investment with oil & utilities world wide being the next objective.

  • rate this

    Comment number 83.


    Sorry, US did not invent electronic computers (largely UK, with Polish input), motorized vehicles (mainly French and German), internal combustion engine, TV, jet engine, hovercraft, tank... democracy or the wheel:) Chinese, not Ford, invented mass production.

    US copied all these but did invent subprime:)

    I believe Israel invents most per capita but are not about to rule the world.

  • rate this

    Comment number 82.

    In the 1920s Britannia ruled the waves
    In the 1930s and early1940s Germany was going to rule the world
    In the 1950s and 1960s the USSR was going to surpass the USA
    In the 1970s and 1980s it was Japan that was supposed to take over
    In the 1990s and 2000s it was the EU
    Now it's China

    But Chinese experts themselves scoff at the idea.USA's advantages are nothing short of staggering.Rediculous!

  • rate this

    Comment number 81.

    #79. Suilerua

    I wouldn't crow on about Ford or GM if I were you.

    How long ago was it when they were bankrupt and had to go cap in hant to Capitol Hill?

    Apple is simply a fashion item. HP is what now? Printers?

    Some of the companies you cite are teetering on the brink.
    I agree that there is some good stuff there. But they are all getting old.

    Where is ST and ARM headquartered?

  • rate this

    Comment number 80.

    How far is China from being able to do this?

    On August 6 we'll find out if the US can do it. I'd say China's about 40 years behind or until they steal the plans, whichever comes first.

  • rate this

    Comment number 79.

    Like Europe China doesn't have evem 1 Apple Computer, IBM, Microsoft, Intel, Cisco, Motorola, Texas Instruments, HP, AMD, GM, Ford, and I could go on and on. There is not a single major technological breakthrough or innovation it responsible for. Even companies like Lenovo were sold to it by IBM because PCs have been commoditized. It's only the CPU chips that are cutting edge now and that's US.

  • rate this

    Comment number 78.


    OK this is Stephanie's blog so I suppose number crunching is endemic.
    I haven't done it but have seen company after company being taken over by multinationals who then run them into the ground.

    I cannot name a mainstream UK owned manufacturing company, yet know of many foreign owned that are busy outsourcing parts.

    Their business model is development by acquisition. Then closure...

  • rate this

    Comment number 77.

  • rate this

    Comment number 76.

    Have you actually looked at numbers? Have you checked current GDP and how much is manufactures? And then compared back over, say five decades?

    Decline? Yes. Reduction? Definitely.

    But you may be surprised how the numbers turn out.

  • rate this

    Comment number 75.

    A century ago John D. Rockerfeller said; "Anyone who bets against America will go broke." It was true then, it's true now.America is practically self sufficient. It doesn't really need anyone else.China depends for its existance on the rest of the world to supply it with raw materials, buy its goods.By bankrupting its customers it hurt itself.The loss of Europe is very costly to it.

  • rate this

    Comment number 74.


    Sunderland, in common with other cities is trying to reinvent itself by staking all on the "digital economy".

    They are all at it. University upon university Europe wide.
    Getting students into debt and then getting loans from the EU for game software development.

    The similarities with the City are obvious.

    Pity the losers trying to earn a living in the real economy.

    Economy = grants?

  • rate this

    Comment number 73.

    Hi Ronald, The industrial revolution did start in UK & Europe, that's my point, it was a technical edge that has lasted a few hundred years and has given superiority to the Western hemisphere. That edge is now all but gone, and the East is rising again fast.
    This may not be happy reading to many here, but unfortunately it happens to be the truth.


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