China vs. the U.S.

The big deal for me is that the U.S. will bankrupt itself trying to fight the new reality instead of embracing it and taking the initiative in downsizing its military. A visionary U.S. leader would recognize the coming change and, instead of passively riding the downward slope to second rate military status, proactively withdraw from our superpower status and spend the dividend on finding an economic niche for success as China's junior partner.

The UK won a reprieve from economic irrelevance when North Sea oil went online. Now that they've become a net oil importer, there's very little to stop it from becoming another Portugal or Greece. A quaint, out of the way tourist destination for richer Europeans who don't like beach vacations.

What the U.S. chiefly has going for it right now is its ability to export grain. Underneath it all, we were a glorified agrarian society, and now we can slowly go back to being that overtly unless we come up with a plan B.

 

The U.S. economy had passed the British economy by the end of the 19th century, but it took a few more decades for the U.S. dollar really to replace British currency as the world's reserve currency.

In today's financial markets, I imagine the yuan will begin to replace the dollar as the world's reserve currency much more quickly. The Chinese will likely allow the Yuan to float more or less freely once they are the world's biggest economy, and that will help speed up the process of the Yuan replacing the dollar, but by 2050 at the latest, the Yuan will be the primary currency of world trade with the USD and Euro second rank currencies.

 

I think you're giving them too much credit. Their growth will likely level off long before they reach that point; they are simply getting too big, too fast, and, like my bacterial colony example from a previous post, they cannot sustain this level of explosive upward mobility. I don't think there are enough resources on the planet for it, myself. Eventually, they will hit a plateau. The faster they climb, the faster they will hit it, and the harder it will smack them on the head .

Peace,

V-03

 

Let's also not forget that China is totally caught in an employment/ecosystem trap. If they let economic growth slow, then they can't keep employment rates up for their massive population. If they let the economy speed forward, then they continue to destroy their environment. Environmental degradation is getting so bad in China that it will soon become a national crisis.

 

The biggest threat to China's future in the medium term is resource nationalism and commodity scarcity. Whether the world will be able to supply China indefinitely with the levels of fossil fuel and other vital industrial inputs it needs for current growth rates is I think an open question.

Once China becomes the world's largest economy within a few years from now, however, it will have little problem outbidding the rest of the world for commodities, essentially forcing U.S. and European consumers toward more and more austerity and savings to fund their growth. China should have no problem growing to about 1 1/2 times the size of the U.S. economy before it hits any serious downturn.

Environmental factors are a bit of an unknown. No one really knows exactly how China's ecological degredation will impact its ability to grow in the long term, but I don't see it eroding their growth over the next five years.

 

I read a story about an explosion in Shanghai recently(think it was that city) and a huge explosion blew up a restaurant full of people. They found out it was due to improper storage of chemicals and solvents in the restaurants back rooms.

I can imagine this stuff happening more and more often as growth outpaces the state's ability to keep up with their regulatory regime.

 

Here's an interesting article on the "containment" strategy that the U.S. is pursuing in Asia, and why it might not necessarily work out nicely. Basically if either Japan or India, who may or may not have a bone to pick with China, turn out to be somewhat loose cannons then we could be in for a rough ride.

 

China May Spend $1.7 Trillion in Decade on Power Generation, 21st Reports

With the U.S.'s aging energy infrastructure, we will soon be left far behind the Chinese in energy technology.

The Chinese are spending more than an Iraq war on energy while we are draining away our resources on occupation of foreign lands. I am skeptical about them actually achieving this goal, but according to the article, 36.3% of Chinese energy will be non fossil fuel (mostly nuclear and hydro, and to a far lesser extent solar, wind and tidal) by 2020. The U.S. will be far behind this level in 2020, making it that much less competitive.

Of course, at 64% fossil fuel, the Chinese will be burning more coal, oil and natural gas in 2020 than has ever been burned by anyone at one time in the history of the industrial world. If they can import it. They won't be able to produce it themselves, that much is certain.

 

Well, we already have an alliance and our military stationed in Japan, and we're not backing away from that committment anytime soon.

China and India don't have an antagonistic history, I'm not sure what the author is talking about. They've had a few border gunfights, and a short border war a few decades ago, but that's it. They've both kept to themselves over their long history, which is really quite amazing. Their "border" is also a remote, mountainous region, and not too important in terms of resources. They also have a long cultural exchange and common spiritual/philosophic background, such as Buddhism, that stretches back for millennia. They have different political ideologies, but unlike the United States and the Soviet Union, neither is really interested in evangelizing and spreading their political beliefs. They're a little suspicious of each other, since they're both rising powers, but it really is a relatively good relationship between them. The only region where their spheres of influence overlap is Southeast Asia, which isn't paradise but it is relatively stable and growing economically. I don't see them coming into any conflict, they have no reason.

 

China to overtake the US in scientific output within 2 years.

 

"Made in the U.S.A." may be staging comeback
Study says American labor may be more cost-effective than China before decade's end

The "Made in the USA" label may be poised for a comeback, a new study argues.

The next few years will bring a wave of reinvestment by U.S. multinational manufacturers in their home base, as rising wages and a strong yuan currency make China a less attractive production center, the paper by the Boston Consulting Group predicts.

The study, published on Thursday, says U.S. reinvestment will accelerate as the United States becomes one of the cheapest locations for manufacturing in the developed world. If it came to fruition, such reinvestment could speed up a delicate economic recovery that has yet to gain much traction.

There is evidence the trend has already started:
?Caterpillar Inc. said last year it may produce construction excavators at U.S. facilities that are currently imported.
?NCR Corp. brought back production of automatic teller machines to Georgia, creating 870 jobs.
?Toymaker Wham-O moved production of Frisbees and Hula-Hoops from China and Mexico to the United States.

More such announcements are likely over the next year or two, BCG says, citing conversations with clients.

"If you work the math out using today's numbers. you'd still say it's a good idea to go to China," said Hal Sirkin, a senior BCG partner and lead author of the study. "(But) around 2015, you get to a point of indifference between producing in the U.S. and producing in China."

Wages in China are still a fraction of what U.S. workers earn. Direct pay and benefits for production workers in the United States are about $22 per hour, versus only about $2 in China, roughly 9 percent of the U.S. cost.

But that difference is expected to narrow, with the Chinese worker earning about 17 percent as much as his or her U.S. counterpart four years from now. Factoring in higher U.S. productivity rates, the weaker U.S. dollar and other factors, such as shipping costs, that difference could narrow further.

The study predicts China will remain a major global player ? just less of an exporter to the United States.

China will still export to Europe, whose workers are less able to move for jobs than U.S. workers are. U.S. wage advantages could eventually reach the point that European automakers will export U.S.-made cars to Europe, the study said.

The appeal of a shorter supply chain and fewer headaches from issues like intellectual property will also help encourage jobs and production to come back to the United States, BCG said. Policy could also nudge manufacturers to make the move. High unemployment is driving state incentives to attract factories, while unions are becoming more flexible.

Still, the study's thesis is based on assumptions that may not play out.

One is that supply and demand of labor in China are increasingly moving out of balance. Another is that demand from a growing Chinese middle class will raise costs, as factories shift to producing for domestic consumption and workers demand more pay to pay for goods that were out of reach before.

Also, the yuan's rally could reverse. Since China first loosened restrictions on trading the yuan, its value has steadily strengthened from more than 8 yuan to the U.S. dollar in 2005 to fewer than 6.5 per dollar now.

The expected U.S. reinvestment, meanwhile, will affect some industries more than others.

Shoes or clothing are work-intensive and do not require highly skilled labor. But higher-value goods made in lower volumes, such as home appliances and construction equipment, are more likely to bear the "Made in the USA" label in coming years ? especially if they are large and expensive to ship.

General Electric Co's example supports the study's contentions. GE's appliance unit is in the middle of a four-year, $600 million plan to build up its manufacturing presence in Louisville, Kentucky, adding some 830 new jobs.

"The default has been to say: 'Let's put the next plant in China,'"

 

Not to mention that doing business with China is no longer beyond the scope of the American public; Foxconn was recently forced to increase hourly wage to 3.50. Things are only going to keep getting more expensive there as China's populace actually starts making actual living wages.



Today on ForeignPolicy: China's America Obsession

 

Foreignpolicy.com has become one of my favorite sites.

Its feature on The New Geopolitics of Food is one of the most concise statements on the nexus of climate change, food production, resource depletion and population growth that I have read.

Reading the China article together with the food geopolitical article will give you I think a near-complete picture of global geopolitics for the next two decades.

 

The only way to compete is through vigilance and maintaining a strong and formidable Navy and Air Force. We also need to stop supporting the rest of the world and start taking care of are domestic issues; infrastructure topping the list. The only nations we need to support are Israel, South Korea and Taiwan. Central and South America need to be high on list of interest as is in the maintaining of their independence, and their growth and development. The EU should be watching over Africa, as most of the problems there stem from the Europeans' colonization of that continent and therefore they should be paying to maintain the peace and security there. Allowing China in there is in no one's best interest.

All of our Founding Fathers have stated the need for and maintaining a powerful Navy as well as some of best Presidents:

"It follows than as certain as that night succeeds the day, that without a decisive naval force we can do nothing definitive, and with it, everything honorable and glorious."
President George Washington, 15 November 1781, to Marquis de Lafayette.

"Events of October 1962 indicated, as they had all through history, that control of the sea means security. Control of the seas can mean peace. Control of the seas can mean victory. The United States must control the seas if it is to protect your security...."
President John F. Kennedy, 6 June 1963, on board USS Kitty Hawk.

"A good Navy is not a provocation to war. It is the surest guaranty of peace."
President Theodore Roosevelt, 2 December 1902, second annual message to Congress.

"A powerful Navy we have always regarded as our proper and natural means of defense; and it has always been of defense that we have thought, never of aggression or of conquest. But who shall tell us now what sort of Navy to build? We shall take leave to be strong upon the seas, in the future as in the past; and there will be no thought of offense or provocation in that. Our ships are our natural bulwarks."
President Woodrow Wilson, 8 December 1914, An Annual Message to Congress.

Now I have read that some say that we had established an empire in post WWII. Nothing could be further from the truth. We contained the USSR form expanding theirs. Europe and Pacific Asia in 1946 was a mess. Yet, through the efforts of the men who led the armies against Hitler's Germany, Mussolini's Italy, and Hirohito's Empire of Japan we rebuilt those nations and empowered their people with democracy and saved them from falling into the hands of communism. How many of you know of the Berlin Airlift, when the US Air Force flew in food,coal,supplies for 2million people for 2 years. At its height a plane landed and took-off every 2minutes. 100+ Airmen gave their lives for the freedom of those who were their enemies not year before. One of the greatest humanitarian efforts ever.
One need only look to North Korea, China-pre Nixon, the former Soviet Bloc to see how much good our gunboat diplomacy did. In about 1885(+/-) the British passed a law that their fleet had to be twice as large as the next 2 combined. After WWII they passed the ball to us. The ball being the peace and security of the seas to commerce, vacationers, and so forth. Piracy was unheard of until the end of the cold war. Western forces cut back their navies and the Soviet Navy pretty much rusted in port, thereby leaving the seas unguarded and open to murderous criminal enterprise. The Chinese were in it until video tape of crews being executed helped to lead international police authorities back to the Chinese port authorities giving out the shipping info. The Chinese gov't executed those responsible.
China currently has at least 1 aircraft carrier, which they purchased from the Russians along with the hull of the USSR's 2nd uncompleted carrier. They are I am sure building more. They currently have the largest standing army in the world, and I believe the largest air force. They lack a navy. But thanks to Bill Clinton, they have been able to shorten the technology gap. All of these industries flipping the bill to moderniz

 

Wow. Grandpa? I thought you were dead!

 

To compare Taiwan to Hong Kong is ludicrous. The British leased Hong Kong for 99 years, so they had to give it back regardless. The People's Republic of China agreed to uphold the lease after ousting Chaing Kia Shek after WWII, for many reasons,and it is doubtful the British would have pursued a course of war over it at the time, but then again they might of since most of their colonial holdings were being lost one way or another, and there is always the stubborn British sense of pride(Stopped Napoleon and Hitler with it though).
To abandon Taiwan would be a catastrophe on so many levels. The Commies would immediately arrest pretty much every member of the Taiwan Defense Force and all officers would be executed, remember Katchin Forest?. The entire populace would be subject to re-education in reverence of the great leader(Mao). It would be a crime on a larger scale then the selling out South Vietnam by the Democrats in Congress in 1975. Nixon was able to secure a peace treaty in 1973 after the successful Linebacker 1 & 2 air offenses, allowing the US to leave honorably and maintain logistical support for the South, much as China and the Soviet Union had done for the North. In 1975 the Dem's voted to cut all aid to the South and within months of that decision the North lined up its tanks and moved south. We had won every battle and secured the DMZ at the 17th Parallel, but the Congress of 1975 made all those lives lost seem meaningless and lost for nothing but their political motives. The South held the line for two years. The funny thing being is that the the Vietnamese of North after securing the South, and hearing of the poverty their relatives were living in sent their children with food, money, and clothing to help their underprivileged family members. Once they got to Siagon and the like they saw first hand that their so called their enslaved and exploited kin were living 10X better than they were in the North and all their sacrifice was for nothing.
Ever hear of the Kashmir province in Northern India? Well it has been fought over a few times by Pakistan and India. It is a very contested piece of real-estate and during the last confrontation the Chinese sent in troops. So now on this piece of territory is split 3-ways, with all side laying claim to it as a whole. It is Alsace-Lorraine of South-central Asia. Even worse so, when add to the equation nuclear weapons which all sides now have, for 20 years it was just China and India with the bombs.

 

Terrific China vs. U.S. debate in The Economist - Will the Yuan Become the World's Reserve Currency?

The question is whether becoming the world's main reserve currency will follow quickly on the heels of China becoming the world's biggest economy. Is it something we'll see by 2020? 2030? or not at all.

 

But every indication points to China's situation catching up with it. China is going to be crippled by its aging population. And there is no easy way out for the Chinese government. For all the debate that has been focused on pension reform and/or social security in US, the US has it easy. Imagine China. By 2014, there is going to be 200 million people in China who turn 60 or older. In other words, China has the prospect of dealing with 6 whole Canadas worth of retirees every year for the next couple of decades at the minimum. Already the strain is being felt. In China, 5 laborers have to be employed for every retiree. Notice that's not 5 pensions per laborer, it's 5 laborers per pension. As a result, wages and labor costs in China are already rising, making foreign investment unattractive. While some are more detailed than others and don't really focus on the pension aspect, here are a couple of links which explore the social condition in China:

HERE

HERE2

The Chinese government is also in a no-win situation. Already overcrowded, Chinese population controls serve to keep this in check, but also diminish the available pool of labor. The 5 workers per pension figure above isn't going to change without massive reform, but in the next decade, there are only going to be 3 workers per pension available, which means that each worker is going to have to bear more and more of the burden. Although knowing China and its strict austerity programs of the past, I wouldn't be surprised if the Chinese government just ended up eliminating its entire elderly population through Soylent Green production, or adopting a Logan's Run-esque policy of simply killing anyone who becomes older than a set age.

 

Obviously I think those are sound programs for any country to implement in the coming years, but it will take a whole lot to reverse China's industrial momentum in the medium term. They have captured so much the world's manufacturing base with new, state of the art capital in many places. Their grid is more or less brand spanking new in many places. Just as I don't think America's crumbling infrastructure and socially backward tax, labor and welfare policies spell immediate doom for our economy, I don't think China's relentless growth is going to be killed by anything but a convergence of everything at once: environmental catastrophe, an energy shock, food supply problems, an inverted demographic pyramid, not that it can't happen.

 

Mr44 where are you getting your information that China is looking at a catastrophe from their upcoming seniors? Anyone who is giving this advice knows very little about China. There are a number of reasons why an aging Chinese population will be fine. First, the Chinese are incredible at saving money. They practice this since they are children getting red packets filled with money every spring festival. This habit is useful for when they they buy a home, typically in cash and paying in whole. Secondly it is customary for elders to move in with their children. This is just one reason why sons are preferred within the one child policy. The sons will take care of the parents, if not having them move in with them they will leave nearby and provide for them. Parents also typically live with their children to help raise grandchildren. Their version of social security is for stuff like food or electric bills. They don't have mortgages, property tax or any state/federal tax to worry about.

As for the Solent Green stuff that's just too ridiculous to even respond.

 

Gallup conducted an international poll of 155 countries looking for a 'national happiness index'. China placed 125th; the US placed 14th.

Economic growth-who cares about that?

 

Given the lack of freedom in China, I'm not suprised the people aren't very happy. One wonders what China's potential could be if it was a s free as western nations.

Typical that the scandinavian countries (you know, those "evil socialist" ones) are the happiest, they seem to rank highly in all these global quality polls.

 

This National Interest article is the most even-handed discussion I've read in a while about the end of the American century, the economic and military rise of China, and the future of America's position in the world. It's a little too optimistic for my taste, but very astute.

The End of the American Era

The main points:

- 1945 to 1990 represented the ascendance of American economic and political power in a bi-polar world, with America the senior power
- 1990-2025(ish) is the era of America as the world's hegemonic economic and military power, albeit declining as a share of the global economy with the EU currency union and the economic rise of China
- 2025-? onward will either be a bi-polar world with the U.S. the junior economic power and eventually potentially the junior military power vis a vis China or a multipolar world with a number of emergent regional powers like Brazil, Turkey and India.

- Unlike the Soviet Union, China's economic rise is based on participating heavily in the global economy. Although this creates financial and economic connectedness, China will increasingly be forced to project its military to protect the inflow of commodity resources that fuel its economy. The rest of Asia will continue to see the need for a powerful U.S. to act as a counterweight to Chinese resources. The current level of growth in Chinese military spending puts it on track to become a major rival to the U.S. military and perhaps to become the world's dominant military force (I'd add here too the rate of Chinese technology acquisition means that the U.S. technological military edge may disappear sooner than some people think). Once the current wave of infrastructure development and expansion ends in China, it will be in a position to devote an even larger percentage of its GDP to military buildout.


In the immediate future, to bolster its position:

- the U.S. should remove all its troops from Europe.
- the U.S. should take steps to disentangle itself from Afghanistan as quickly as possible, as this is not a conflict that can be "won" in any meaningful way.
- the U.S. should move toward a posture of "offshore balancing" in the Middle East and avoid long-term conflicts with boots on the ground.
- and unless the U.S. acts to unburden itself from its debt, rebuild its crumbling infrastructure and reform its educational system, it will be even more the junior power in a China-U.S. rivalry. In the long term the U.S. will not be able to compete militarily with China unless it can compete economically.

And of course China owns a lot of our debt, an interesting facet of the rivalry.

 

The people who think China's going to become some sort of superpower do realize that the country is built on a huge, huge bubble, right? That China has ghost cities and malls that aren't even freakin' used. But yeah, they're somehow going to conquer the world with their industry and 3rd rate military. Yeah, I'm realistic enough to know that America's influence is waning, but that doesn't mean that China's going to magically become the world's foremost superpower. If anything it's going to collapse spectacularly. I think what's going to happen is that you'll get equilibrium where some nations will be slightly larger than others, but in the end no nation will be able to dominate things.

 

It's not just the ghos towns and ghost malls. There's also China's demographic timebomb, which I've already explained several times. And it doesn't really seem to have any allies, even in its own neighborhood. We just have to hope it doesn't completely collapse and turn into a failed state. But it will decline within our lifetimes.