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

    Comment number 29.

    Economic commentators would have more credibility regarding China's future prospects if they had, in fact, been able to see the GFC coming. If my memory serves me correctly, very few predicted it. Now they all fall over themselves trying to pick the next one, safe in the knowledge that if they get it wrong, they can have another try 6 months from now.

  • rate this

    Comment number 28.

    China holds the $ in its hand it can bring t $ down if it so wishes


    It has entered the devils den ; GLOBALIZATION the banking cartels global market place


    If it throws the anvil into t canyon. once t slack is run out it will go over with t failing US empire!


    It buys gold & buys gold big in readiness for launching its own/ some other configuration of a World Res Currency

  • rate this

    Comment number 27.

    How much of this part of the American bashing which a minority of vocal Europeans do. I notice they are potrayed as representing mainstream European oppinion when they and the EU are not anywhere near it.

    What people refuse to acknowledge is that the majority of inovation comes from Western countries. and despite the debt that China owns, they need the U.S more than we need them

  • rate this

    Comment number 26.

    While Obama was in Africa, he had the chance to visit Zimbabwe, but didn't. I guess he didn't want to make himself look bad visiting "you know who." Instead, he gave away our tax dollars to rich African nations, whose infrastructure and people need the money, but not their leaders, to whom the money will most likely end up. That's politics for you, and why China may be making inroads, but not U.S.

  • rate this

    Comment number 25.

    While I dont doubt child labour is significant in China's economy to place all the credit for recent growth there is erroneous. 20 years ago I visited state of the art electronics factories in China, and they have not stopped development since. High end electronics are not made by 9 year olds.

  • rate this

    Comment number 24.

    12. Friendlycard
    "P.S. Both Titanic and Bismarck were "unsinkable". This is the problem with euphoric claims".
    Bismarck was hit by in excess of 400 British Shells of up to 16 inch Calibre, and several torpedoes, but did sink.
    A Ship's Cat Oscar ( Unsinkable Sam), might have survived the action and served on two british Ships, HMS Cossack & Ark Royal which also sank.

  • rate this

    Comment number 23.

    no,when they have to start doing their own r and d etc they will come unstuck, good little ants they maybe, but not very hot on original thought.
    when the first world finaly gets their it security working properly and govs clamp down on chinese industrial spies, the chinese economy will collapse, there is also the problem of natural and man made disasters that will screw their economy big time.

  • rate this

    Comment number 22.

    More likely to be India, in a slightly longer time scale. China has a one child policy, India is getting bigger has nuclear tech, English language use to a degree to piggy back a rise on the back of the USA, UK past world dominance.

  • rate this

    Comment number 21.

    18. Alan
    It's fine to comment but to show up ignorance like that is a bit too much.
    Chinese workers don't enjoy as much rights for sure, but Chinese child labour is as distant as the British empire.
    In Shanghai, some people die of over-work, guess what company they worked for? PWC. Now, last time I checked, it's a partnership firm run by westerners. Wana re-think what you said?

  • rate this

    Comment number 20.

    With a One Party System no opposition,no unions,no health & safety and a West that has an unquenchable thirst for cheap goods & turns a blind eye to Dickensian labour conditions ,then it's no surprise that China has become the No2 industrial power behind the USA..

    China may look unstoppable but there is a social undercurrent of social unrest that will need addressing soon..

  • rate this

    Comment number 19.

    Worrying on many levels

    China has all but ruined the manufacturing infrastructure in many nations, due to its subsidy led advantage. No level playing field, total neglect of Intellectual Property Rights, Copyright and Human Rights.

    If they go down the tube the rest of the world will not be able to fill the gap fast enough.

    Vis-a-vis ship building, steel production, manufacturing, plastics, etc.

  • rate this

    Comment number 18.

    While there are children to be used as cheap labour & greedy companies to exploit them, china will keep on rising.

  • rate this

    Comment number 17.

    15. Moneydude
    Definitely agree with you. Chinese workers have much fewer holidays and are almost forced not to take them. A lot of the middle class people only started going abroad while most working class are happy to stay in the country. unless the brits, every extra penny goes to holiday in Spain, even people on benefit.

  • rate this

    Comment number 16.

    On a recent Swiss cycling holiday, I couldn't help noticing the larger hotels packed to the gunwhales with Chinese, all clutching iPhones and top-of-the-line DSLR cameras, even in the low season. Of course, it'll take a while for all 1.2bn of them to visit the coutry, but they do seem to be ramping up consumption faster than the other BRICs. And even spending some it abroad.

    Will it be enough?

  • rate this

    Comment number 15.

    Who works the hardest? The Americans or the Chinese?

    The work ethic of the Chinese is second-to-none. They eat more healthily, are rarely obese, they exercise more than westerners, and they have an amazing resource rich country.

    It is a shame it is communist, but the new China is head and shoulders above the competition. That is why our wages are being driven lower.

  • rate this

    Comment number 14.

    In a significant proportion of China's history it has been the economic super power of the world, mainly perhaps as a function of its early formation as a large country but nevertheless the recent period with China a smaller economy than other states is the exception rather than the rule.

  • rate this

    Comment number 13.

    "In 2012, according to statistics released by China's National Bureau of Statistics in January, 2013, the size of the labor force, people aged 15 to 59, in China shrank slightly to 937.27 million people. This trend, anticipated to continue for at least the next 20 years, to 2030."
    Pensioners will increase.
    They have a big problem

  • rate this

    Comment number 12.

    In the 1980s, Japan was "unstoppable". It stopped.

    In the 1990s, the ASEAN 'tigers' were "unstoppable". They stopped.

    On this basis, China looks eminently stoppable.....

    P.S. Both Titanic and Bismarck were "unsinkable". This is the problem with euphoric claims.

  • rate this

    Comment number 11.

    China's biggest problem is population, which it's working hard to address. Economists will always ask for more GDP, more work force, but to have sustainable growth, a government must work hard to improve the quality of its work force rather than stack up the number of people.
    China might slow down, but so long as they stick to their vision, they will do fine. Now, let's worry about the UK.

  • rate this

    Comment number 10.

    Could be. Why should they be any brighter or better than any other country who have got things wrong or taken a careless or mistaken turn?

    But they are putting a lot of effort into balancing & holding together - in a globalised economy - a very tricky situation there.

    Getting a bit like China on NR's Blog - comment suppressed for 10 in a row!


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