Is China's rise unstoppable?

 
Chinese builder

A clear majority of Brits, Germans, Spaniards, Canadians, French people, Poles, Australians and South Koreans believe China will supplant America as the world's leading superpower (and quite a few of those think it's already happened).

However, for all the African land and minerals that China has gobbled up, only a minority of Africans believe China will become more powerful, in a political and economic sense, than the US.

And there is similar scepticism about the sustainability of China's rise in much of the middle east and parts of South America.

As for Russians, well they are split down the middle - which may tell you something about Russia's complicated and uneasy historical relationship with both the US and China.

These are among the intriguing results of a poll conducted by Pew Research of almost 38,000 people in 39 countries between March and May this year.

And when it comes to the economic aspect of power, there are some equally striking results.

For example, 44% of Americans named China as the world's most powerful economy, rather more than the 39% who picked out the US as No 1 in this narrower sense.

And a clear majority in the UK, Germany, France, Spain, the Czech Republic and Australia describe China as "the world's leading economic power".

So who is right - the Europeans who already doff their caps at China's might, or the Africans who see the Chinese buying up their assets but are doubtful that America will ever be knocked off the apex of power?

Well right now, and as I implied last month, African mild scepticism about the seemingly unstoppable rise of China looks quite smart.

For two reasons: there is a gentle economic recovery taking hold in the US, that could and should accelerate.

But more germanely, and as I've said before, there are reasons to believe that China's much more rapid growth could slow down sharply and even judder to a halt.

That kind of hard landing (to use the ghastly economists' cliche) is not what the International Monetary Fund (IMF) said it expects in its so-called Article IV consultation on the People's Republic of China.

The IMF still expects China's economy to expand 7.75% this year - although it acknowledges downside risks.

What is striking is that IMF data confirms earlier unofficial estimates of the rapid - and many would say dangerous - pace of lending since the global financial crisis of 2008.

In four years, what the IMF calls "social financing" - loans that aren't on the government's official balance sheet, so more or less what we would call private sector lending - rose by more than 70% of Chinese GDP to almost 200% of GDP in total.

And big contributors to this credit explosion were relatively unregulated "shadow banks", which makes it more likely that corners were cut when the lenders assessed whether the borrowers would ever be able to repay.

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There are no examples in history that I can find where this kind of boom hasn't ultimately led to a crash”

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To put this into some kind of context, the IMF also shows that net domestic credit in China as a percentage of GDP is high for a country with its relatively low GDP per head.

So its private sector indebtedness is higher than in the US and Germany - where income per head is between eight and nine times greater.

Chinese indebtedness is much higher than for other fast-growing economies, such as Malaysia, Vietnam, Brazil, Russia and India.

Which implies that in recent years China became too dependent on credit-fuelled growth.

And there has been evidence that China's government and central bank have recognised that this lending binge has become dangerous, and is taking steps to curb it.

But if in a low growth world, if credit creation in China is no longer going to generate growth, what will?

Of course, China's credit boom has been very different from what undermined the foundations of our economy in the binge years before the 2008 crash.

In our case, it was households that borrowed too much.

The structural flaw in China's economy has been a surge in credit-fuelled investment of unprecedented proportions.

Again, as IMF data shows, investment represents almost 50% of GDP, massively more than any developed or developing economy. There are no examples in history that I can find where this kind of boom hasn't ultimately led to a crash - although it is never possible to scientifically predict the timing of the reckoning.

What China needs to do (to state the blinkin' obvious) is to boost consumption - which is also at record lows as a share of GDP compared with both advanced economies and emerging ones.

Managing that shift from excessive investment to sustainable consumption in China represents one of the economic challenges of our age - and, since China has recently been the world's engine of growth, it matters almost as much to us as it does to the Chinese.

 
Robert Peston Article written by Robert Peston Robert Peston Economics editor

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  • rate this
    0

    Comment number 329.

    The wild rugged dangerous and beautiful western states makes us appreciate just how difficult overcoming adversity was for those who went there over 100 years ago to get to the mild climate of the coast. Having lived in California myself for 5 years I've come to understand just how tame the east and places like most of overbuilt Europe are. We are nothing like you. You will never understand us.

  • rate this
    0

    Comment number 328.

    @325.sieuarlu

    so to you "western US" are just the mountain states, excludes big cities like seattle, LA, san francisco etc. so the rocky mountain pass is still being built, & immigrant pioneers are still cultivating the old west.

    @324.DavidinUSA

    OK, you're right, I'll be patient...

    ...but @323, reference lewis & clark on China's economic development? ...lord give me strength...

  • rate this
    0

    Comment number 327.

    What's laughable is that anyone could argue the EU is a superpower when nearly all its members are bankrupt.The economic threat to China is it won't be able to deliver enough acceptable products to its export customers because it is too expensive, inferior quality, or obsolete.It can't sustain itself.Anyway here's Yellowstone, small gem of the US West

    http://www.youtube.com/watch?v=4_eO4gyGfTc

  • rate this
    +1

    Comment number 326.

    Its laughable that anyone who can argue that the US is the engine for growth for the World when one of its own Cities has just gone bankrupt! The economic threat to China is that it needs to develop an internal consumer society to develop so that it doesn't need to rely on increasingly improvished Western economies such as the EU or the US to buy its goods.

  • rate this
    0

    Comment number 325.

    322 I don't know what's wrong with some people. They just don't seem to know how to read. I said the W-E-S-T-E-R-N United States. You ever been to Wyoming, Utah, Arizona, Nevada, Montana, Idaho? You ever been away from the big cities? Ever been to one of our National Parks out west where grizzly bears and wolves still hunt and moose and elk still roam? Where mountain lions and coyotes live?

 

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