China's Emergence As A Global Superpower

And I agree that individual saving does reduce that individual's demand of consumer goods, not related to medical needs. However, it really makes little difference whether the individual or the state saves for these medical needs (assuming the individual saving is via via a bank instead of a mattress) as the funds are invested in new clinics, etc. either way. I think a more accurate POV is that the CCP has decided to invest more in medical services (hospitals, clinics, drug production, nurses training, etc.) and less in new smoke stack industries for export.

This is a general trend (and one I predicted long ago). I.e China has long known (as I have) that an economy built on exports to US and EU was not a stable one as the US and EU were not earning their imports from China with exports to China, but just printing dollars to pay for the imports.

The global crisis just forced the fact that China had to convert to a mainly domestic demand economy to become an urgent conversion drive. Chinese will be traveling more, eating more meat, building larger houses with more electric appliances, cars, etc. as well as consuming more and better medical services.

 

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That depends on your idea of "Good for USA."

Yes, when China ceases financing US deficits that could be good for USA (force needed but painful fiscal measures, etc.) but the US has lost a lot of the skills and factories that could export products even if / when the dollar is half its current value. (Brain produced exportable items, like software etc. the US has also lost its unique position - many can do as well and cheaper.)

Then without the lower cost of Chinese imported goods on Wal-Mart etc. shelves, the American made goods on those shelves will cost more. Even importing from lower cost than China, Asian producers will not be possible with the weak dollar. I.e the cost of living will be inflating for two reasons (higher production cost of goods at Wal-Mart & the weaker dollar).

The "good side" of this collapsing dollar is that repaying the debt will be easier.

As I said, it all depends on what your idea of the greater good is.

 

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If you keep your ear close to the boys in Bentonville (I worked for Walmart for 3 years and I'm still very good friends with three managers there) you'll know that Africa is the new "China". As China rises, there will be, at least for the next century, a third world to serve as the textile mill for the rest of the world. This will, in turn, be good for Africa.

Don't forget all the middle-class consumers who'll be buying more products, some of which will be made here.

~String

 

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No doubt correct. So my suggestion that Wal-Mart's shelves would be stocked with more expensive American goods is probably wrong. However, as you say, that will be good for Africa, but I don't see how the rise of China will be good for the USA.

In fact I have long ago suggested that when China is mainly producing for its domestic market* AND has both diversified some of it reservers out of dollars and used even more to buy real assets (instead of paper promisses) that there will come a day when it is to China's economic advantage to kill the dollar (by dumping its remaining reserves).

I.e. someday when trade with US is not important to China, they can collapse the dollar and nearly collapse Euro to send the US and EU in deep depression. Then the price China must pay for the needed energy, raw materials, and food stock imports will be about 1/3 what it would be if US and EU were healthy economies competeting for these same imports. I.e. import cost savings will rapidly more than compensate for the lost purchasing power of dollars still in its reserves.

Summary: the only significant good for USA I can foresee of China surpassing the US economically is that then the US will learn to live within it means, but that will be very painful, perhaps even make a social / political revolution in the USA.

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*And to pay with exports for the huge quantitiy of imports China needs. (China makes and sends locomotives, telephone networks, mine and harbor machines, tractors, airplanes, cell phones, TVs, computers, Hospital equipment, etc. all sent to Africa mainly in Chinese made ships.)

 

"... With China's growth trend and Beijing's efforts to internationalize its currency, the Chinese yuan can develop into the alternative to the U.S. dollar as a global reserve currency in 15 years, World Bank President Robert Zoellick said Wednesday. ...

This does not mean that the yuan will replace the U.S. dollar but it can provide an alternative and you have the multiplicity of the exchange rates, Zoellick said, noting the rise in the number of currency swaps arrangements being inked between Beijing and governments around the world. ..."

From: http://english.peopledaily.com.cn/90001/90776/90883/6810224.html

Note for some months now Billy T has noted in posts that China, which is world's largest producer of gold, could instantly make its currency internationally convertable and widely accepted. I.e. Just link the Yuan to gold. Probably initially China should prohibit ownership of gold, other than as jewlery, within China as the domestic demand could be large.

Relatively few would actually turn in their Yuan they have earned via trade, etc. for gold because gold pays no interest and their Yuan could be used to buy Chinese bonds which do pay interest.

China started to sell Yuan demonated bonds interantionally on the Hong Kong market about half a year ago. Perhaps China can put the world back on a gold standard, with ~ 5,000 yuan to an oz of gold. - That would reflect the correct value of (the slightly stronger) Yuan.

 

"... U.S. Treasury Secretary Timothy Geithner hailed a commitment by Asia-Pacific ministers to flexible exchange rates even as his Chinese counterpart praised the yuan’s peg for helping the global recovery. ... 21-member Asia Pacific Economic Cooperation group pledged policies favoring “market-oriented exchange rates that reflect underlying economic fundamentals” in a joint statement after gathering in Singapore ... three days before U.S. President Barack Obama arrives in China. ...

Assistant Finance Minister Zhu Guangyao said ... in a press conference with the APEC ministers that China’s policy of maintaining “currency stability” has been a “component” of crisis-response efforts that have contributed to the global rebound. There would be a “big cost” for any early withdrawal of those measures, including fiscal, monetary and exchange-rate commitments, he said.

China has maintained the yuan’s value at around 6.83 against the dollar since July 2008 after letting it appreciate 21 percent in the previous three years. The currency has declined {about 20%since then} against other counterparts, including the euro, in lock-step with the dollar {decline} this year. ...

Record low U.S. interest rates are funding global “carry trades” and dollar is still overvalued, the International Monetary Fund said last week. ...

APEC finance ministers today echoed calls by policy makers around the world for reduced reliance on Asian savings and American spending, a pattern that analysts say held down U.S. borrowing costs and fueled a credit bubble. In a joint statement, they also reiterated a pledge to maintain stimulus efforts “until a durable recovery in private demand is secured.” ...

Asia is “leading the world” back to recovery, the {US} Treasury chief said. American exports are also growing at a healthier rate, he said. ...

China has no plans to alter its policy* of step-by-step changes in the value of its currency, Assistant Finance Minister Zhu also said at today’s press briefing. China’s exchange-rate policy was “working out well for everybody” so far, Thai Finance Minister Korn Chatikavanij said in an interview. His comment countered the argument by Nobel laureate Paul Krugman last month that China is “stealing” jobs by devaluing its exchange rate. {China's artificially weak Yuan, along with help of US low interest rates, is also closing factories in exporting nation that float their currency}...

Besides China, other APEC members also oversee some form of control on their currencies. Malaysia, Singapore and Vietnam manage their exchange rates against a basket of other currencies, while Hong Kong’s dollar is pegged to its U.S. counterpart. Taiwan, South Korea and Thailand regularly buy and sell their currencies in market interventions. ..."

From: http://www.bloomberg.com/apps/news?pid=20601087&sid=aeOqVanTyrHo&pos=4

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*Not what my local paper states today, without naming its source within the Chinese Central Bank: China is planning, probably to announce with Obama's visit, that although the Yuan will still have a fixed peg, it will be to a four currency basket. (US dollar, Japanese Yen, Euro & the S. Korean Won) This may or may not be an immediate strengthing of the Yuan. China has made great progress in switching to a domestic instead of export economy:

Exports in last 10 months fell 13.8% YoY - this despite the value (vs Euro etc.) of the pegged Yuan dropping with the dollar. Yet total industrail production rose 16.1% in October vs. September. The US is now second to the EU as the main buyer of Chinese exports, but both are buying much less now (US cannot afford to import like it once did.) Most of the improvement in US balance of trade (still negative) is due to much lower imports, not increased exports, which have hardly increased.

Note, however, that swiching to a four currency peg is not in literal conflict with what ZHu said -I.e. China would still have a peg that only changed, "step by step." If my local paper is correct, Zhu was just very carefully choosing his words to be true, but mis-leading.

This 16.1% increase in production and the 13.8% fall in exports is showing that within a few years at most, China will say:

USA, go to Hell!! Your green paper is worthless now. We no longer need you to buy our production nor will we finance your deficits.

{Sending the US & EU into deep depression (if not already there) will save hundreds of billions of dollars for China every year in reduced cost of needed imports, when US and EU can not afford to import much oil, etc. China is now rapidly spending dollars from its reserves to lock up oil, minerals and food stocks in long term contracts, so even if it loses some value of dollars still in its reserves as the dollar crashes, there is a net gain in less than a decade.}

 

"... China’s Asia hand has strengthened: It has replaced the U.S. as the biggest trading partner for most of the region’s economies. In 2002, U.S. two-way trade with Japan, South Korea, Thailand, Indonesia, Malaysia and Singapore exceeded Chinese trade with those countries. In 2008, each of those countries traded more with China than with the U.S. ..."

From: http://www.bloomberg.com/apps/news?pid=20601109&sid=al7q1khJ9o3k&pos=10

I might add: It is not just in Asia that China has taken first place from the USA.
China now trades more than the US with most African countries and several in South America, including Brazil, the giant of S.A.

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The fuel for this Brazilain economic rocket is Chinese buying from Brazil. - When US & EU sink into GWB's depression, Brazil will not.

 

Following post could / should be in this thread. It tells that China is ruled by engineers and has photo of China' new just tested high speed train. (Top speed may be 200mph, but is not told in article). See photo and brief text at:

http://www.sciforums.com/showpost.php?p=2435679&postcount=216

The Wuhan-Guangzhou Railway extends to 1068.6 km mainly North/South in China's central / coastal area. Many other new lines go to the west from the coastal cities.

 

“Geely, the publicly traded {Chinese} automaker that Goldman Sachs Group Inc. is backing to the tune of $334 million, is unveiling its first homegrown model specifically designed for Western markets … The gleaming-white four-door compact, which retails for $11,700 to $17,600 in China, is called the Emgran.

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Li with first export model off the line, but obviously not showing style etc. yet.

On Dec. 23, Ford said the companies had agreed on most terms of the sale {of Volvo to Geely, including the Intellectual Property*}, which would be completed in the second quarter{2Q’10}. … {Billy T notes Geely is only the 10th-largest carmaker in China by both sales and production}

Amid a global recession, the collapse of Detroit and trouble at Toyota, investors are wild about China’s prospects. Geely, in which a Goldman-managed fund holds bonds and warrants that can be converted into 15 percent of the company, saw its shares jump 573 percent {in 2009} …

The Chinese are fast-tracking their global strategies by acquiring Western brands, sometimes at knocked-down prices. In 2006, Geely acquired 23 percent of Manganese Bronze Holdings Plc, the Coventry, England-based maker of London cabs. The 55 million pound ($90 million) deal enables Geely and Manganese Bronze to manufacture the taxis in Shanghai, where some workers earn one-thirtieth of the average salary of their British counterparts …

In March, Geely purchased the assets of Australian gearbox maker Drivetrain Systems International Pty, which was operating under a receiver and in the process of liquidating, for A$47.4 million ($43 million). Buying the world’s No. 2 independent maker of automatic gearboxes gives Geely more-advanced technology for its automatic transmissions.

{Geely and seven other Chinese car makers are booming in the world’s largest and fastest growing car market}:

BYD Co., maker of the world’s first commercially available plug-in hybrid, an electric-powered car with a small gasoline engine for backup, … shares surged more than fivefold in 2009 through Dec. 28. Shares of six other Chinese car companies, including SAIC Motor Corp., China’s biggest domestic manufacturer, have at least tripled.

{BMW} the world’s biggest luxury-car maker, announced in November that the Munich-based company would build a new $732 million factory in China. Sales of BMW’s vehicles, including the Mini, jumped more than 37 percent in China in the first 11 months of 2009. BMW makes cars in a venture with Brilliance China Automotive Holdings Ltd., a Hong Kong-listed company whose shares soared more than fivefold in 2009

Chinese car companies are benefiting from a brain drain in Detroit: … {E.g.} Wang Dazong, 55, who has a Ph.D. in mechanical engineering from Cornell University, worked for GM for 22 years. He rose to director of engineering ... In 2007, he left GM to return to China. He worked as vice president of SAIC before being appointed president of BAIC in 2008. Today, Wang has about 30 former U.S. auto executives on his team. “In Detroit, I was always downsizing, downsizing, downsizing,” he says. “Here, it’s nothing but growth, growth, growth.”

Wang’s auto empire is China’s second fastest growing by virtue of its joint venture with South Korea’s Hyundai Motor Co. that makes two-thirds of Beijing’s taxis. BAIC also has ties with Daimler. That venture makes Mercedes-Benz cars. BAIC also owns publicly traded Beiqi Foton Motor Co., the world’s second- biggest truckmaker. Beiqi shares almost quadrupled in 2009 through Dec. 28. …”
From: http://www.bloomberg.com/apps/news?pid=20601109&sid=aTMHHJ85sp1o&pos=10

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* . “All the cars made by Geely will be gas-electric hybrids in the future. However, China's current research and development investment in this field is far less than that of developed countries." Ford and Volvo have spent 10 years and up to 10 billion U.S. dollars developing new-energy technologies. From this point alone, Li believes, Geely’s bid price {~$2E6} is "well worth paying. Of course, Li does not just covet Volvo's new-energy technologies. …" {Wants global distributors, name known for safety, to include luxury cars also in offering, etc. Rich or poor, there may be a Geely in your future.}

From: http://english.people.com.cn/90001/90778/90860/6854230.html

PS This all reminds me of Karl Marx's definition of a capitalist:
"A capitalist is a man who will sell you the rope with which to hang him."

 

You normally need to wait 1 to 3 months to buy a popular new car in China. Most factories can not supply the demand, even running three production shifts, seven days / week! Most factories are also planning or already expanding capacity.
See story: entitled "China’s Round-The-Clock Auto Factories Still Cannot Meet Demand" at: http://www.bloomberg.com/apps/news?pid=20601109&sid=av3dPlponcBw&pos=11

Quoting from article: "Pan, who lives between Beijing and Shanghai, said a lot of Chinese households now own two cars. “It used to be that only company bosses could afford a car, but now teachers and office workers can also buy one,” she said. ..."

"Rural Chinese buying a new minivan or light truck can get a subsidy of 10 percent of the purchase price, up to 5,000 yuan. Those replacing light trucks can get another 5,000-18,000 yuan. The government also reduced the sales tax on new vehicles with engines of 1.6 liters or smaller to 5 percent from 10 percent. It said Dec. 10 it was raising the rate to 7.5 percent.

Honda, which opened 55 dealerships mostly in small cities last year, is focusing expansion in suburbs and exurbs of major cities. ..."

Billy T comment:
While rural salaries average only about 1/3 of the urbanites, sales of light pick up trucks there are growing three times as fast as urban car sales, which are producton capacity limited.

China is making great progress in converting to a domestic dominated GDP, but still has a long way to go.

 

That chart is in PPP; the real wonder there is that it was so low in the first plac :[

For measuring geopolitical power (which is the title of this thread, no?), exchange rate comparisons are more appropriate. For China to equal the US in ER terms, using the same sorts of projections using recent growth rates, you get an estimate of 2045 or so.

However the ER measure is much more sensitive to monetary policies, and not just growth. And the yuan seems significantly undervalued, but it's also difficult to account for what China's growth rate will look like under a less mercantilist approach. So prediction on a decades-long scale is bound to be rather uncertain.

 

And its rebuttal

http://www.foreignpolicy.com/articles/2010/01/07/a_123_trillion_china_not_likely

 

On quad's and kmguru's interesting artilcle and rebuttal in foreign Affairs:

While I tend to agree that Fogel’s article in Foreign Affairs is overly optimistic, some of the rebuttal article’s claims and assumptions I think are false:

For example: “…industry revitalization and consolidation programs, coupled with a massive influx of easy credit, are stifling the private sector … and encouraging production overcapacities in state-controlled, export-intensive, heavy industries like steel and cement. …”

I recently read that China had forbidden ANY expansion of capacity in these industries unless they were operating at greater than 80% of capacity. With the slump, many were not. Also China has just increased the costs of loans, but that was after the “rebuttal article” was written.

Furthermore, while last month’s exports were up that was after 13 consecutive months of decreasing exports, caused mainly by contracted global economy; however, the exports to US and EU were down (almost sure) and the US balance of trade with China last month improved (but was still negative). I.e. as I long ago predicted, China is increasing it exports to nations that supply it with the raw material, energy, and food stocks it needs. For example Brazil/China trade is rapidly growing and China has replaced USA as Brazil’s number one trading partner.

Also there is thru out the rebuttal article the tacit (I think false) assumption* that state directed societies are inefficient. I agree this certainly has been well proven by history (or the current miss managed mess of Chavez’s Venezuela with soldiers now in the larger shops to make sure prices are not raised to offset the owner’s losses with the recent currency exchange rate changes), but China is NOT the traditional state directed economy.

China is a hybrid economy, with less government interference in the market place than in the USA. China’s CP plans and controls only the development of the society’s basic infrastructure and by all rational considerations is doing better than they USA with its short term POV. (I.e. US is mainly interested in investment that have some pay back while the current administration is still in power and will help it get reelected – I.e. lots of pork, like the bridge to nowhere, etc.) In China, bridges are not only built where needed but also maintained, not fixed after they fall down, etc. Maintenance of infrastructure in US is terrible. (For example most water system leak badly. NYC is supplied by more than 50 year old leaking pipes along the Hudson River. A major disaster soon to happen when a section ruptures.)

I think this basic tacit assumption is wrong and China’s double digit growth for 30+ years shows that to be the case. IMHO, China has developed a better economic system than the world has ever seen. They let Adam Smyth’s invisible hand control what is available for sale in the market place, with so little government interference that tainted milk etc. is sold. But the basic infrastructure is actively argued out by professional economists, not lawyer/ legislators under the influence of lobbist horse trading mutual support for their state’s share of the “pork” and then becomes part of a sequence of 5 year plans. – Why China is able to sign 30 year contracts for the supplies it will need in the distant future. US has no long range plans. It justs assumes that the dollar will be strong enough to out bid others for the imports it critically needs when the time comes to receive those imports.

IMHO, that is also a false assumption. China can destroy the dollar whenever it wishes to but it will need to have its domestic market more than 50% of the GDP before it will chose to do so.

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*This assumption radiates throughout this paragraph of the rebuttal article:

“This heavier reliance on a state-led approach will doubly skew China's growth potential by dampening innovation and reducing the returns expected on sizable education investments. It will be enormously difficult for China to move beyond manufacturing to become an innovator without genuine reform of a political and economic system that stifles individual expression and creativity and directs massive human and financial resources toward less-innovative, state-owned firms. Fogel's expectations for education's growth contribution, based on education and productivity data in the United States, may not fully transmit to China. After all, China's top college graduates are actively seeking jobs in either government or state-owned firms, for higher salaries and job security. That's good for the bureaucracy, but not so good for innovation and entrepreneurialism. …”

Perhaps it is better for China’s future to have engineers, doctors, scientists etc. running government, especially with China’s “hybrid economic system” than lobbyist, lawyers congressmen mainly concerned with their re-election? I think so.

 

"Chinese commercial banks saw their bad loan ratio declined to 1.58 percent by the end 2009, China Banking Regulatory Commission said on Friday. The figure was down 0.84 percentage points from the beginning of 2009, according to the commission. ..."

From: http://english.people.com.cn/90001/90776/90884/6870717.html

As I recall, about ten times greater fraction of he US residential and commercial mortgages are "underwater."

 

Complete nonsense. Commercial lending in China is an arm of the state, and the market is severely distorted by mercantilist monetary policies. They still have Five Year Plans over there, fer crissakes...