Biggest Economy in the World

[Hector]

Do you have an idea how much USA hates China? The last thing they want is to depend their economy on those "commies". It's like letting your enemy handle and store your ammunition during a war.

Doesn't stop them buying chinese goods though, does it?

[Hector]

I tell you what, though, if it wasn't for the fact that it does not have the European model of welfare provision and the current political incumbent, then, the place to go is California.

Aw, shucks, I think I would rather be in Sarky's France!

We are told (by whom?) that it will not be before long when the Chinese economy will outstrip the US.

Well, imo, it will take some doing.

Those that believe the US market is the one to be in are absolutely right...but not totally.

[Todd]

We are told (by whom?) that it will not be before long when the Chinese economy will outstrip the US.  Well, imo, it will take some doing.

What does "not be before long" mean?  Projections by various government, business, and academic economists put the time period between 2040 and 2050.  (I realize that long-term economic forecasts are roughly equivalent to poorly practiced witchcraft.)  That seems like quite a while to me, though I think it may take a little longer.  Were I still alive when that day comes, I'd probably keep most of my investments in US assets.

[head-case]

What does "not be before long" mean?  Projections by various government, business, and academic economists put the time period between 2040 and 2050.  (I realize that long-term economic forecasts are roughly equivalent to poorly practiced witchcraft.)  That seems like quite a while to me, though I think it may take a little longer.  Were I still alive when that day comes, I'd probably keep most of my investments in US assets.

Reporting on the Chinese economy suffers from the a lack of familiarity with even simple mathematical concepts.  It is projected that the GDP of China will exceed that of the US sometime in the middle of the century, but that is because their population is four times as large.  This means their GDP per person with still be one forth of the US.  What distinguishes the US economy is the highest GDP per person of any major economy.   This is because the US economy is characterized by companies such as IBM, Google, Intel, Oracle, Microsoft, GE, etc, while the Chinese economy is characterized by companies that make billions upon billions of socks under labor camp conditions.

[MishaK]

I hope that never happens. Provide the chinese population with the consumption level americans have, and there will be no enviroment left.

Actually, according to this article which I just read in the Spiegel this morning, Chinese CO2 output has already surpassed the US by 8 percent. Link to the Dutch study cited in the article here.

[Todd]

Chinese economy is characterized by companies that make billions upon billions of socks under labor camp conditions.

Some Chinese companies are starting to adopt more effective methods of management, though they are still very few.  Hell, some outsource to even lower-wage countries (eg, Vietnam) even today. 

As I stated in my initial post, the average citizen in China will not really notice much when China does become the largest economy.  The government, however, will be able to flex more muscle goepolitically.  That's assuming the government doesn't also undergo major changes.

[Redbeard]

While I suppose one could try to argue that China could simply dump US debt to cripple the US economy (which wouldn't necessarily happen), there would be repercussions.  There would be less downward pressure on the yuan, causing it to rise in value to closer to where it should be, which means China's exports would suffer world-wide, which is bad for China, and exports to the US would plummet due to the decline in the dollar and retaliatory trade legislation, which is even worse for China. 

If for any motive China started rapidly selling it's interests in US debt, the affected bond market would start to drop so fast that automatic triggers or US Dept of Treasury intervention would temporarily halt trading.  From there, the US treasury would ask the Chinese how much debt they intended to liquidate short term, and then announce a structured plan where X amount was sold off per day until the amount they wanted was sold.  This would protect the US bond market, but devastate China.  First, China would end up selling their bond holdings at distressed prices.  Second, as you mentioned the transfer (or just the anticipated transfer) of dollars back to Chinese currency would cause the yuan to soar, which would mean they would get far less in return for the sale of the bonds in terms of their own currency.  Lastly, as you stated their exports and therefore their economy would tank because their exports would be far more expensive to the rest of the world overnight.  As the saying goes:  "Borrow $5, and the bank owns you.  Borrow $5 Million, and you own the bank!"

This is a spring loaded problem for China, and not unlike what Japan faced in the late 80s.  The tension is built into the system, the only question is how long can it continue and will it be let out gently or violently.  For Japan the whole thing fell in at once, and only now is their economy starting to come back. 

[Redbeard]

It is projected that the GDP of China will exceed that of the US sometime in the middle of the century, but that is because their population is four times as large.  This means their GDP per person with still be one forth of the US. 

To further your point, China may have 4 times the population as the US, but 70% of the population is still outside of the cities employed in subsistence agriculture;  China is working very hard to prevent the kind of mass agricultural to industrial migration that would be very disruptive to their system but had to happen in every industrialized nation.  This is a tough trap for the micro managers of China's economy.  If they do allow the massive flow of people from the farms to the factory, their carefully managed political system likely wouldn't survive the transformation.  If they don't allow the massive change, this would mean they would have to achieve a GDP per non agricultural population roughly equal to the GDP per capita of the US.  Actually, this is worse because of China's one child policy.  Their ratio of people in working vs retirement age will be much lower than that of the US by then, so the GDP per working age, non agricultural, population would have to be at a level the rest of the  world has never seen.  Their growth rates are certainly impressive now, but playing catch up from essentially the stone age is much easier than blazing the trail, especially for a centrally planned economy. 

[head-case]

how insightful, so the richest companies made socks? you obviously know nothing.

Obviously I am missing something, since I see no relationship between this statement and anything in the quoted post.

[head-case]

are you blind or are you just forgetful?

I never said the richest companies make socks, obviously the richest companies specialize in fraudulent schemes involving corrupt government officials (such as the health minister who was recently sentenced to death for accepting bribes in exchange for approving untested health care products).  However, cheap textiles are one of China's biggest export catagories.

[bwv 1080]

Speaking of the current trade deficit with China, it was precisely this reason why the British started to import Opium into China in the late 18th century.  The west had a huge appetite for Chinese goods (porcelin, tea, silks etc) while the Chinese had no interest in Western goods.  Silver was the medium of exhange, and the huge inflows into China were disruptive to both parties.  China's economy at the time lacked the ability to invest the influx and it caused inflationary problems in the country.

[Josquin des Prez]

This is because the US economy is characterized by companies such as IBM, Google, Intel, Oracle, Microsoft, GE, etc, while the Chinese economy is characterized by companies that make billions upon billions of socks under labor camp conditions.

I thought it was because US companies such a IBM, Google ect. thrived upon Chinese labor camp industries...

[Todd]

I hate to say this for the (god knows how many times); you can't understand China by just reading news headlines from the internet or local newspaper, you have to be there, have speaks with the people, and experience first hand, to KNOW about China, so until you can do that, don't make some non-sense statement that you plagiarized from somewhere else.

This is utter nonsense, at least with respect to economic and political matters.  Of the 1.3 billion+ Chinese people, how many have a detailed knowledge of Chinese banking practices, monetary policy, government budgeting, international economics, the latest proposals for military research and expenditures, the deals in the pipeline for CNOOC, and so on?  The obvious answer is almost none, which is much the same in the rest of the world.  It is possible, though, to rely on the opinions of economic and political experts who specialize in China (including some actual Chinese experts), along with best estimate data compiled by a variety of sources, and combine that with analytical insights gained from education and experience to arrive at reasonably informed judgments.  China is not immune to the same types of issues and problems that plague the rest of the world; it just ain't that special.

In terms of understanding cultural issues it may make some sense. 

[bwv 1080]

i don't understand, Xianfeng Emperor's problems regarding to inflation was caused by the Opium trade, but if the CHinese didn't know how to handle their economy and messed it up, that's their problem (like in Yuan Dynasty).

but, my problem is this; how noble it is for Britain, to export such healthy product such as Opium, didn't Qianlong send the message to MacCartney already? we don't want you weird things, but the British still Wanted Chinese products. Doesn't this sound like rape?

Why should the East India Company have listened to Qianlong?  There were huge profits at stake.  At least it was a better arrangement than the Atlantic triangular trade.  If the chinese had used the influx of silver to modernize they could have resisted the west.  The Western powers certainly behaved better in China than any other "invader" in its history.  Compare the Brits to the Japanese in the 20th century for example.

[MishaK]

Why should the East India Company have listened to Qianlong?  There were huge profits at stake.  At least it was a better arrangement than the Atlantic triangular trade.  If the chinese had used the influx of silver to modernize they could have resisted the west.

If the Chinese hadn't destroyed their enrmous trading fleet in the 15th (or was it the 14th?) century and turned toward total isolation, they could have dominated the west long ago. We would be talking about the Beijing based West Europe Company instead.

[bwv 1080]

I thought it was because US companies such a IBM, Google ect. thrived upon Chinese labor camp industries...

They are not labor camps.  Factory wages in China are around $165 / mo (http://news.bbc.co.uk/2/hi/business/6645583.stm)  low by Western standards, but a multiple of the dollar or two a day that is the average for the rural population.  People are flocking to the cities to take these jobs because they are better than any alternatives open to them.

[bwv 1080]

If the Chinese hadn't destroyed their enrmous trading fleet in the 15th (or was it the 14th?) century and turned toward total isolation, they could have dominated the west long ago. We would be talking about the Beijing based West Europe Company instead.

Yep.  Fortunately for us China has never really been an expansionist power, aside from some aggression against its geographic neighbors.

[Redbeard]

Regarding to China's economic future; I believe the future is bright, because the latest chinese generation appear to much less frugal than the before. Due to western influences, young people in China are spending their money, and thus contributing to a stable economy. I have faith that capitalism will continue to thrive in China despite all those pessimistic predictions made by western observers who obviously knew nothing of China.

I'm not aware of this shift but assuming it continues this would be the best possible news for China.  It seems that every developing country is falling into the trap of fueling their growth through exports via forced domestic savings.  This trick always looks great, until it falls apart.  The sad thing about China to me is how well the Chinese do when they live anywhere but China.  It would be interesting to see how big the GDP of China would be if it had the same GDP per capita as overseas Chinese populations (ie Tiawan). 

As optimistic as the people of China make me about it's future, the Chinese government makes me even more pessimistic.  In a way I think the relatively easy time the govt has had with allowing China to begin to catch up with the rest of the world has only made them even less flexible in their thinking.  While it is difficult (and foolhardy) to predict exactly when this will happen, eventually the easy catch-up/export growth will wane and to continue to grow even at modest rates the economy will have to transform.  This will be the moment of truth, and I wish the people of China the best of luck in addressing that challenge.  The world will be a far better place when (if) the people of China are free to engage their considerable talents to the betterment of themselves and the whole world. 

[MishaK]

As optimistic as the people of China make me about it's future, the Chinese government makes me even more pessimistic.  In a way I think the relatively easy time the govt has had with allowing China to begin to catch up with the rest of the world has only made them even less flexible in their thinking.  While it is difficult (and foolhardy) to predict exactly when this will happen, eventually the easy catch-up/export growth will wane and to continue to grow even at modest rates the economy will have to transform.  This will be the moment of truth, and I wish the people of China the best of luck in addressing that challenge.  The world will be a far better place when (if) the people of China are free to engage their considerable talents to the betterment of themselves and the whole world. 

That strikes me as a bit too simplistic. The former Soviet Union shows what happens when reforms in a large, ethnically diverse former communist country are pushed through at too fast of a pace. The last thing we need right now is a country of 1 billion and with a nuclear arsenal disintegrating into smaller pieces, some governed by dictators and vast wealth disparities everywhere. Thanks, but no thanks. I think the slow pace of Chinese reforms is rather desirable for the time being.

[Redbeard]

That strikes me as a bit too simplistic. The former Soviet Union shows what happens when reforms in a large, ethnically diverse former communist country are pushed through at too fast of a pace. The last thing we need right now is a country of 1 billion and with a nuclear arsenal disintegrating into smaller pieces, some governed by dictators and vast wealth disparities everywhere. Thanks, but no thanks. I think the slow pace of Chinese reforms is rather desirable for the time being.

What makes you suggest that China is "ethnically diverse"?  I know wiki isn't the gold standard of truth, but usually a good "back of the envelope" guide, especially if a topic isn't political:

The PRC officially recognizes 56 distinct ethnic groups, the largest of which are the Han Chinese, who constitute about 91.9% of the total population.[67] Large ethnic minorities include the Zhuang (16 million), Manchu (10 million), Hui (9 million), Miao (8 million), Uyghur (7 million), Yi (7 million), Tujia (5.75 million), Mongolians (5 million), Tibetans (5 million), Buyi (3 million), and Koreans (2 million).[68]

With just under 92% Han Chinese, that doesn't sound ethnically diverse to me.  Either way, I never suggested breaking the country up.  What I would like to see is true democratic and economic reforms to make the mainland look much more like Taiwan.