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, economics editor Article written by Robert Peston Robert Peston Economics editor

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  • rate this
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    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
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    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
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    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
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    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
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    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?

  • rate this
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    Comment number 324.

    322.antirrhinum choke
    "your ignorant presumptions...your tangential ramblings..."

    Don't be too hard on sieuarlu - behind all his bluster, I believe he has a good heart. It's often hard for cynical Brits to understand home-town US-style patriotism. But it's a strong force even though it can cause delusion at times (eg over Detroit being allegedly nothing to do with Democrat mismanagement).

  • rate this
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    Comment number 323.

    317 I suggest you get a good book or video series on the Lewis and Clark Expedition. It was the first journey white men took into the vast untamed western United States. Much of it is still as wild and untamed as it ever was. Here's a start;

    http://www.pbs.org/lewisandclark/

    http://www.nationalgeographic.com/lewisandclark/

  • rate this
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    Comment number 322.

    @317.sieuarlu

    "Clearly" I've not visited US? how so?

    The only thing clear to all is your ignorant presumptions, not least your tangential ramblings: the diatribe about americans quitting & succeeding is out of context & clearly indicating a wondering mind.

    yes I've been to US quite a few times, even worked for more than one US firm, lots of US clients & friends.

    Clearly you're wrong, as usual.

  • rate this
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    Comment number 321.

    314. sieuarlu

    PPP GDP = Nominal GDP x PPP

    What you did is divide PPP GDP by PPP, which is essentially the same as Nominal GDP. I suspect the PPP value you used was different to the one used in the PPP GDP statistic, resulting in a discrepancy in the results.

    Nominal GDP: US=$15tr, China=$7tr

    Nominal US per capita GDP is only about 10 times higher than China, not 20.

  • rate this
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    Comment number 320.

    317 Clearly you have never visited the Western United States.Pioneer is dead accurate.This is not Europe.This is the wild, there are places in the US no human has ever set foot.The land west of the Mississippi is nearly empty until you get to the West Coast.Once the whole nation was like that.Americans do not give up.Instead of throwing up their hands and quitting they try until they succeed.

  • rate this
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    Comment number 319.

    I imagine there'll be a few belly-laughs about the Chinese politburo table when the regime considers the collapse of Detroit.

    Hey - perhaps the Chinese might pick up some cheap real estate there? Perhaps they'll let Obama off the hook by offering to trade some of the federal cash debt for land? Or perhaps they can suggest ways of re-inventing Detroit, as a kind of post-industrial museum?

  • rate this
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    Comment number 318.

    sieuarlu @310
    'you're not from here or you wouldn't be so pessimistic'

    Shallow perhaps, but maybe 'cruel to be kind' - as yourself with respect to Europe - DavidinUSA identifies need for The People to 'print dollars', given that some are the victims of 'capital strike' in democratic deficit

    The US has physical & human capital in abundance, but much devalued & all at risk from "stupidity" @302

  • rate this
    -1

    Comment number 317.

    @308.sieuarlu
    US media & xenophobes are too busy denigrating other nations to reflect on internal predicaments such as Detroit.

    @310
    "pioneers": romantic.

    @312
    US corporations & arms manufacturers have revenues & markets to dominate, its not a free lunch.

    @315
    along with Chinese & Europeans, the blacks in US also enjoy insults from this troll.


    The ignorant rants rolls in as bad comic relief.

  • rate this
    +1

    Comment number 316.

    DavidinUSA @301
    "economic mismanagement"
    Due to political failure, far deeper than 'demagogues & unions'

    The failure is shared by Reps & Dems, by Tories & Labour, by all who pretend that democratic freedoms - poetically those 'inalienable' for the 'Created equal' - can exist without agreed enduring equality of 'vote in the marketplace', incentivisation by equal income-shares in equal partnership

  • rate this
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    Comment number 315.

    It would have helped Detroit if African Americans hadn't burned the city down in 1967.When rioters loot and burn a place down they only make it worse for themselves.It's hard to see how they could be so stupid.Nobody wants to invest where it might happen again unless some substantial change has taken place.City workers with overly large pensions and greedy bond investors will be hurt.So what?

  • rate this
    0

    Comment number 314.

    311 It is you who doesn't understand.Also you obviously didn't read my posting. I made it clear the PPP method distorts comparisons by presenting income in local buying power. By that standard if only gasoline were considered Americans would have over twice the GDP as Europeans due to their high gas tax while Saudis who pay 10cents a gallon would have 40 times US.It doesn't compare like with like.

  • rate this
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    Comment number 313.

    #308.sieuarlu
    "New York City was on the verge of Bankruptcy in the 1970s and recovered"

    Exactly. It was the GOP & Giuliani who rescued NY from Democratic mismanagement - & only the GOP can rescue America now. If you think the poineer spirit will save Detroit you are delusional - it's all 3rd world standards from here on. The US is fragmenting into ethnic enclaves, Yugoslavia-style.

  • rate this
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    Comment number 312.

    US could save a lot of money by pulling out of NATO, bringing all of its troops home from Europe, and letting Europe defend itself.That money could pay for medical care, rebuilding infrastructure and a lot more.It's time for the US to stop making one way concessions to Europe.If they feel they are worth defending let them pay for it.Bad enough we have to pay to defend SKorea, Japan, Philippines.

  • rate this
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    Comment number 311.

    @292. sieuarlu
    Please don't throw around Economics jargon when you don't understand the concepts.

    You use GDP per capita instead of total GDP to compare so population won't skew the results.

    http://en.wikipedia.org/wiki/List_of_countries_by_GDP_(PPP)_per_capita

    US is around 5x higher GDP per capita from the multiple studies, no where near the 20x you claimed.

  • rate this
    -1

    Comment number 310.

    307It's clear you're not originally from here or you wouldn't be so pessimistic.It was highly unlikely the US would survive or even come into existence at all.If you really understood what it's been through and how strong it really is you'd realize all this will eventually be fixed.It may take a crisis or 2 but it will get better.Americans are by nature optimistic.Real pioneers never say die.

 

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