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 69.

    In the 70's Japanese was the way to go. Rapid growth and so on bosted by low costs and cheap cash. Theyn made it to 2nd largest economy. Then reality anb 20 years of stagnation (started by a fiancial crisis)

    The same will happen with China. USA and Europe will still be stronger than anyone thinks.

  • rate this

    Comment number 68.

    In general the perspective of the article is very narrow and short term. I believe 21st century will be the Asian century in the same way that the 20th was American...not entirely but on balance. There are many characteristics in Chinese culture that will limit it, as we see now in the US - but this will be a century of equalization, resources will be shared more equally as they shrink.

  • rate this

    Comment number 67.

    64. carl c
    China is one party rule, hardly a dictatorship...but yeah, the west has been doing this for so long, saudi arabia, libya etc. it's crazy double standards.
    tho, if you check the consumption rate for an average Chinese person against an average British person, you'd be surprised. I think the media paints a glamorous pic of China, but more than 70% of its people lives in the countryside.

  • rate this

    Comment number 66.

    They have massive problems with US debt holdings and an even bigger problem with a Housing bubble (as do Australia).

    They are years aways from a per capita self sustained market.

    A soon as per capita rises so will wages and the western companies will look for slave labour elsewhere.

    They don't innovate, they replicate, which isn't a basis for
    long term economic wealth.

  • rate this

    Comment number 65.

    We look to China for world growth, then for burst of a Chinese bubble to save the world from China!

    What we mean - to be charitable - is save the world from more turbulence, by which we should mean to allow the fair sharing of work and reward across the world, irrespective of capital allocation

    How better to stabilise than with income-share equality for all?

    As bonus: representative democracy

  • rate this

    Comment number 64.

    I think Chinas' value is in how it is helping to pull our western economies out of trouble by their consumption (ref JLR etc) so we turn a blind eye to dictatorship and excessive consumption of raw materials. So economically yes it will overtake the USA very soon, however its growth is partly fuelled by export to Europe and USA. They are being hit hard by a failing Europe however...

  • rate this

    Comment number 63.

    59. theboots
    You make a good point there. I think people under-estimate the risks the Chinese government took with the one-child policy, but it greatly reduces its need to raid resources from other countries.
    I don't care if China overtakes US, I just wish they'd behave more appropriately - we do not need another neighbourhood watch unit.

  • rate this

    Comment number 62.

    ''there is a gentle economic recovery taking hold in the US, that could and should accelerate''

    Absolute tripe!!!

  • rate this

    Comment number 61.

    China will not repeat the mistake of gunpowder and will build its economy on industrious innovation.
    The west has already given its technological lead away and will continue to do so in its manic love affair with finance.

  • rate this

    Comment number 60.

    It's entirely possible they'll go past the US economically

    Absolute GDP perhaps.
    GDP per capita - never.

  • rate this

    Comment number 59.

    It's entirely possible they'll go past the US economically but they don't seem as keen on being the military bully boy, despite high spending on their military it's around 1/6th of the US by total amount and 1/2 by percentage of GDP. Guess they've got other priorities.

  • rate this

    Comment number 58.

    Can anyone imagine Germany plastered by pictures of Hitler, as China is by pictures of Mao? How could such country unable or unwilling to recognize who Mao was become world superpower?

  • rate this

    Comment number 57.

    China does not control the money markets...that's in the hands of the Rockefellers and Rothschild's and as far as I am aware they wont be getting Chinese citizenship soon. If you don't control the money markets they will never be top dog in this world. The Global Corporatocracy that is developing is not Chinese and never will be- they may well be the victim of it if anything.

  • rate this

    Comment number 56.

    China may become more wealthy or even a super power, but it will not be a place people want to live. In general most the wealthy Chinese want are buying abroad to live and westerners only go there for work for short periods.
    The pollution is terrible and is not a place to bring up children.
    good luck to them

  • rate this

    Comment number 55.

    The word on the streets is that China has lost its way. Having been working with them for about twenty years I am inclined to agree. There are now too many problems and too many people there with attitudes. Those who can recall Japan at its peak will know what I mean.

    There is a malaise about these days: a sense of pending collapse and it is everywhere. If only there was a button marked `Reset'

  • rate this

    Comment number 54.

    Chip curry and rice in tlay.

  • rate this

    Comment number 53.

    Economically? Maybe, eventually. Millitarily, nah, they haven't had a 'blue water' navy for centuries, one secondhand carrier doesn't cut it. US Navy carrier groups are in double figures, never mind their nuke subs. Some way to go there for China.

  • rate this

    Comment number 52.

    "At least the Chinese don't have to make do with unkempt Victorian-era infrastructure."

    They certainly do not, I suspect some of them will be happier when they achieve that lofty standard.

  • rate this

    Comment number 51.

    All empires believe the world should be run by their dictates. This to prolong their dominance. Justifications are aplenty from spreading 'democracy' to 'god's manifest destiny' for one nation alone and all others must comply or suffer consequences like sanctions or war. But history moves in cylces, time passes, the arrogant are laid low whether the US or China.

  • rate this

    Comment number 50.

    I wouldn't like to predict who'll come out on top but it seems a lot of people are happy to do so out of fear of the unknown and faith in a eather romantic view of the West, particularly the US.

    It's really not that clear cut, but for vassel states like ours, it hardly matters. Unless the West turn belligerent as they often do ;-)


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