China vs. the U.S.

I don't know who's arguing that China "magically" becomes a superpower "overnight" but it isn't me. The article suggests that China becomes the world's biggest economy by 2025. They are acquiring more and more civilian state-of-the-art manufacturing technology, which they demand as the price of doing business with them.

My argument is that military superpower status inevitably follows economic status, for China in particular because, as D-G argues, they will have plenty of potential conflicts with much of the world over resource access.

D-G also I believe is overstating the demographic issue. It's a challenge, also for western Europe, but I don't believe it will be the overwhelming factor in determining their national productivity. I think their environmental challenges are a lot more severe than their demographic challenges per se in any case, although the two are of course closely related.

And I'm willing to get on board with the idea that a major real estate bubble collapse is about to happen. Let's say it's as bad as the U.S. housing market collapse, or worse. Say a 50% collapse in commercial and residential real estate prices.

It won't slow their growth much in the long term. The RE market will correct, China will use its vast currency reserves/surplus to throw money at the problem in ways the U.S. is too politically hamstrung and indebted to consider. Even a 50% RE correction won't cause more than a 5-10% recession at worst. But since China has captured much of the world's new manufacturing capacity, growth will resume. And then maybe their economy outpaces ours in 2027 instead of 2025, or 2023 instead 2020. Whatever. I don't think it impacts the big picture.

Unless of course it's a global economic collapse that hits everyone simultaneously, in which case of course China comes out on top anyway. A global downturn would bring the U.S. to its knees right now. But China would be able to shrug it off within months.

 

- 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.

Is decline really a forgone conclusion? Sure U.S. jobs are going overseas now, but as countries like India and Brazil rise up economically, that also opens up new markets as domestic consumption rises. So wouldn't that balance out the increased competition from abroad?

 

It's shallow nonsense. I've been meaning to write a post about China's paper tiger of military progress, but IRL keeps interfering. In brief China's military progression is a joke that has never measured up to its supposed potential. The fact that nobody enjoys living there is vastly more important; economic prosperity will keep the masses quiet for only so long, especially when the "masses" consist of people living near coastal regions and not in most places in China.

 

FromShanghaiist.com:

[image=http://shanghaiist.com/attachments/Fanhuang/japanvschina.jpg]

China, despite massive growth, still has a long ways to go before its internal spending power is anything like European or American citizens have.

 

Personally, I think the US is a lot closer to utter collapse than most think. One one hand this is sobering, on the other it's very encouraging.

 

Can't comment much right now, exam due tomorrow, but this article fits in right here:



TIME: What if the China bubble bursts?

What's the most important economic question in the world today? One contender would certainly be whether the euro will collapse. Another might be whether the U.S. will plunge into a double-dip recession. But a third, and possibly the most important over the long term, is whether China can find its way out of the biggest housing bubble ever created.

It may seem strange to Westerners, who hear so much about the rise of Asia and growing Chinese competitiveness. But like U.S. Republicans who try to "starve the beast" by cutting government spending, the Chinese Communist Party has been attempting to put a damper on the debt-fueled real estate boom that is at the heart of the nation's economic miracle. This is part of a deliberate attempt that is meant to rejigger the Chinese economy into one that relies more on a domestic service sector and less on manufacturing and exports. If, however, the party's efforts result in a precipitous drop in real estate values, multinational corporations whose revenue and earnings growth are tied to China could be hard hit. And the U.S. could be thrown back into recession. (See pictures of China's 90 years of communism.)

The world has to care about Chinese growth, since it is an important driver of the global economy. China contributed 19% of the world's economic growth in 2010, and that's expected to increase to 24% this year. China's growing strength is essential to both the U.S. and European recoveries.

While Washington has sweated through its partisan debates on budget balancing and economists have bickered over solutions to our low-growth and high-unemployment problems, the Chinese boom of the past several decades has blasted ahead without a glitch. Much of that boom is wrapped up in real estate. In the first six months of this year, Chinese investment in real estate was up 32.9% compared with the same period in 2010, and China's economy is expected to grow more than 9% this year, about equal to its average during the post ? Deng Xiaoping era of "communism with Chinese characteristics."

The popular narrative is that China's rise from nowhere in 1978 to its position today as the world's second largest economy has been fueled by cheap labor. While this is one factor, cheap capital and land have been as important. Most Chinese, who are huge savers, have little choice but to put their money in bank accounts that pay interest lower than the rate of inflation; these funds are then channeled into state-owned enterprises whose capital expenditures create the factories and buildings on which the Chinese miracle has been built. (See pictures of China's cutting-edge architecture.)

But the Chinese are pretty smart about money. They see the fortunes the elites have made by buying land at bargain prices and developing it. Ordinary individuals cannot get in on the ground floor to reap the obscene profits made by well-connected officials who facilitate purchases from historical occupants, but they are permitted to invest in real estate at later stages of development, and their wealth grows every year. Anyone who's spent more than a day or two in China knows that real estate is a popular preoccupation. Apartment flipping is all the rage; real estate prices have tripled in the past five years.

The question is whether the building bubble ? not only in housing but in commercial property as well ? is about to burst. Everywhere you go in China, you see new airports and high-speed train lines under construction; see-through apartment buildings whose empty units loom unilluminated in the night; beautiful underutilized roads, bridges and tunnels; and newly risen ghost towns waiting for occupants. One such town, Kangbashi, in Inner Mongolia, has everything a city needs, including investors who have bought apartments on spec. Yet it remains unoccupied, as reported last year

 

China's miracle is coming to an end

 

If/when the China bubble bursts (particularly in housing/banking/consruction, there are giants malls and skyscrapers going unused, and they're still building more)... what would be the social, political, and economic effects?

[image=http://upload.wikimedia.org/wikipedia/commons/9/99/China_administrative.gif]

 

Competition for natural resources would greatly diminish, which would give all the other resource established countries some breathing room. The global economy would be effected as much as the current factors already apply. If other emerging markets- India, Myanmar, etc.. step up to assume a lot of Chinese trade, the impact would be diminished. Internally, I don't think much would change within China. China is still on the cusp of being an internally focused vs an outwardly focused country. The Chinese government could certainly retreat inwards-pull its tortoise head into its shell- and China would come to resemble how it was in the 70's, before the major focus of around 1989.

 

I'm not saying China won't have a difficult time in the next few years, but it still has a gigantic trade surplus with the world and massive currency reserves to go with them. It has captured a nice chunk of the world's manufacturing capacity, much of it still shiny and new and state of the art.

The U.S. and Europe don't win much from Chinese mega-expansion grinding to a halt, other than, as 44 notes, temporary energy price relief. The U.S. is still bidding itself up to a national debt level that will likely hit 120% of GDP or more now that Congress has proved what we all knew would be a lack of political will to do anything about it. There's very little room for us to be smug about Europe's debt problem.

What we know is that spending more is bad news, sure, but that austerity measures are shaking Europe to its foundations, felling governments right and left and threatening the continued existence of the currency union. We see microcosms of that in the U.S. with the battle in Wisconsin over public unions, occupy WS, etc. But that's really nothing compared to the likely result of a committed austerity project in the U.S. to bring our national debt down to a respectable percentage of GDP.

In an economic downturn, the Chinese are loaded with economic ammunition to fight a stimulus war, nor do their leaders burden themselves any longer with debilitating counterfactual political ideology. The U.S. has nothing going for the next recession. We're politically paralyzed by factional ideologies and in a financial trap that gives us few stimulus opportunities or monetary policy tools.

 

China is worried about a trade deficit next year, and its factories are starting to move out of country since Chinese labor is demanding more benefits and higher wages. It's new and shiny infrastructure and buildings are going unused, with a very fragile commercial real estable bubble. Its banking system is also a complete mess, highly disorganized.

China Trade Deficit next year

Chinese manufacturing is decreasing, slowdown expected to continue It doesn't talk much about it, but I've read other articles that many factories are moving out of China to poorer countries in Southeast Asia, India, Africa, and Latin America.

Also, I'm not saying that the West wins anything from China's fall. If their economy collapses then ours will probably be brought down again too.

 

Rise of the TIMBIs

Jack A. Goldstone is Hazel Professor of Public Policy at George Mason University and non-resident senior fellow at the Brookings Institution. He blogs on global trends at newpopulationbomb.wordpress.com.

This graph is for labor force growth by country through 2050.

[image=http://www.foreignpolicy.com/files/fp_uploaded_images/111202_0_graph1.JPG]

This article is nearly six pages long on fp.com, so I won't be quoting all of it here, but it basically boils down to 1) China's labor force is no longer growing, 2) China's terrified, authoritarian grip on thinking destroys innovation and 3) a brace of other countries don't have these issues. It proposes replacing BRIC with TIMBI, for Turkey, India, Mexico, Brazil, and Indonesia.

 

The problem with those countries are two-fold; some of them are authoritarian like Indonesia, all of their governments are putting far less (and have far less resources to do so) in R&D and infrastructure projects than China, the possibilities for economic growth are more limited because they are just far smaller and less populous countries and at the end of the day, China is just far more popular place for large scale investments by foreign companies thanks to it's huge potential based on the above. Some of the investment will naturally go to producing stuff for Chinese markets in neighbouring countries, especially if China does continue to be able to transform growth to higher wages and higher living standards. In that case neighbouring countries with pittance wages could continue to feed on China's growth.