China on Course to Overtake US Economy

Here’s a stat to get the old ticker pumping first thing in the morning:

Past 25 Year Growth Rates:

China: 8%+
U.S.     3%

on an inflation-adjusted average annual rate

Does that place a recent meme circulating on Wall Street (particularly from right-leaning economists) that the increase in Oil prices is due to "speculators" into some context?

Consider this from the WSJ:

Wsj_china_01232005191041_2Understanding this trend is far from academic, with an impact
likely to shake up businesses and governments and today’s U.S.-driven world
order. Having the world’s largest economy will give China a greater say in
global affairs. Its currency, which is now pegged to the U.S. dollar, will join
the yen and the euro as globally traded currencies and in doing so will erode
the dollar’s position as the world’s default coin of choice. China’s military,
which has enjoyed double-digit budget increases for much of the past 15 years,
is likely to grow larger, bolstered by the huge economy.

The Central Intelligence Agency, for one, is taking note. A
research arm, the National Intelligence Council, issued a report last month
likening China’s emergence and its impact on the world to that of the U.S. in
the last century and Germany in the 19th. The report says that by 2020 the
world’s geopolitical center of gravity will tilt toward Asia, especially China,
the economy of which will have surpassed Japan’s to become second only to that
of the U.S.

Events could knock China off course. The country is beset by
deep-seated problems, from shortages of energy resources and water to severe
environmental degradation and an enlarging gap between the prosperous and poor
that could generate widespread unrest. Some economists argue that to sustain
long-term growth, market economies require political freedom — something the
communist government shows scant intention of bestowing. (emphasis added).

The obvious conclusion is that we are entering a period of global competition for resources, and our biggest competitor will be China (pop: 2 Billion), followed closely by India  (pop: 1 Billion). Indeed, China has already surpassed Japan to assume the position of No. 3 trader in the world, behind
the U.S and Germany.

I have been thumbing through two books  on the subject:  The Chinese Century by Oded Shenkar, and China, Inc. by Ted Fishman, the latter of which I will be dragging on a vacation/business trip at the end of the month.

The Journal optimistically notes that China’s historical periods of dominance tend to be self-defeating:

"China also has a history of economic supremacy, having been the
world’s largest economy for much of the 700 years starting around 1000. In an
echo of today’s capital and technology transfers, the introduction of
early-ripening rice and later of New World crops like maize and sweet potatoes
created food surpluses, allowing the buildup of porcelain and silk industries
that dominated global trade, says Kent Deng, an economic historian at London
School of Economics. As late as 1730, historians say, the country produced a
third of the world’s manufactured goods. China currently dominates about 12% of
world manufacturing.

Yet history provides another lesson that puts the Chinese
economic leviathan in perspective. Despite its dominance, the country was
quickly eclipsed by the rapidly industrializing Western European nations and the
U.S., in part because it failed to develop systems of scientific research and
ways to commercialize findings. Much the same criticism is leveled today at
Chinese companies and government, whose research and development spending trails
that in wealthier nations."

The implication is that unless the communist capitalists move towards a more market based (versus centrally planned) economy, its only a matter of time before they make a fatal error. I’m not all that convinced this is a persuasive argument. Consider in tandem with that thought our market based economy in the United States:  How highly manipulated (i.e., non-market forces) is the US economy?

For the full blown China paranoia, however, we need to go to  321 Energy’s discussion on "China’s Master Plan to Destroy America:"

"The final war for the planet’s resources has already started. You name the commodity and China’s buying it and consuming it in HUGE quantities. Last year they consumed nearly half of the world’s cement, twice the world’s consumption of copper, and nearly a third of the world’s coal, 90% of the world’s steel plus nearly every other commodity you can think of has been in greater demand by China.

However in order to propel such furious economic growth, there is one key commodity you need above all the others. And if you can’t get enough of it, having all the other resources won’t matter. The most prized and sought after commodity which makes the world tick is oil. With out it, you have nothing. Your economy would be frozen and your military would be left inept.

As China’s Master Plan to Destroy America manifesto outlines, the multifaceted battle plan recommended by the Chinese military has taken shape . . .

Frankly, destroying the biggest buyer of your goods doesn’t sound like much of a brilliant plan. But get past the paranoic ravings, and the discussion on energy competition is quite insightful.

Also, the CIA has quite a few things to say on the subject. The full report is linked below, but I had to include at least one graphic:

click for larger graphic:

source: CIA, Mapping the Global Future

Lastly, a friend did an absolutely brilliant analysis of how China is securing their energy future in Russia and Venezuala; If I can dig it up, I’ll post it later . . .



Mapping the Global Future: Report of the National Intelligence Council’s 2020 Project
NIC 2004-13
CIA, December 2004   (PDF version)

China and the Final War for Resources   
Bill Ridley
321 Energy, February 9th, 2005

China May Be on Course To Overtake U.S. Economy
THE WALL STREET JOURNAL, January 24, 2005; Page A2,,SB110651152358433393,00.html

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What's been said:

Discussions found on the web:
  1. Scott Koser commented on Feb 11

    Gotta chime in here, first not a China expert, just a spectator who is long natural resources.

    China can join the first world and work its way towards USD$27,000 per capita GDP like the first world, but it is gonna be tough.

    Looking to history, great societies that are not city/states (Hong Kong comes to mind) typically have a couple of things in common in addition to freedom (self determination, at least for the ruling class) 1. A strong base of agriculture that makes them almost self sufficient for food, and 2. A strong banking system.

    We could argue for hours about China’s ability to feed herself but were it not for the high savings rate in China the shortcomings of the banking system would be laid bare.

    Those issues must be addressed for them to project the growth rate of the past 25 years 25 years into the future.

    Have no doubt that the teeming millions joining the middle class around the world are going to make the price of stuff we take for granted go up, up, up (think India, Iraq, Brazil, Eastern Europe in addition to China). Now it is energy and hard natural resources, soon it will be cocoa, coffee, bananas and some grains. I don’t even want to think about what the price of a filet mignon is going to be in the year 2015 if the Chinese can upgrade their palate.

    Probably a good stretch of time to be a farmer here in the good ole US of A.

    Structurally the USA has problems because of the emergence of China, but they pale in comparison to what Germany and France face. Because our society is open and we practice creative destruction, we will muddle through.

  2. Steve Casburn commented on Feb 13

    I’m not advocating complacency, but I do recall that the headlines 20 years ago were “Japan on Course to Overtake US Economy”.

  3. meyer commented on Feb 14

    The population of China is 1.3 B not 2 B as noted thats a big difference. The point is to develope confidence, please try to keep the data as correct as possible.
    Good article

  4. Right Mind commented on Feb 14

    Carnival Of The Capitalists

  5. Alex Jacobson commented on Feb 15

    Will China overtake US power in 20 years?

    Big Picture forecasts China overtaking the US in GDP in 20 years. Resource competition for econmic growth will dominate relations over this time. I think China has a good story simply because of the size of their population. I am less optimistic becaus…

  6. Alex Jacobson commented on Feb 15

    Will China overtake US power in 20 years?

    Big Picture forecasts China overtaking the US in GDP in 20 years. Resource competition for econmic growth will dominate relations over this time. I think China has a good story simply because of the size of their population. I am less optimistic becaus…

  7. observations and particulars commented on Apr 2

    the higher price of oil

    Here is a good read as well. The demand for many commodities is driven by China. Not only physical use, but when China acquired Hong Kong they got the traders. The Chinese have become a force for all to see.

  8. yo commented on Apr 28

    this article sucks its all wrong and biased

  9. yo commented on Apr 28

    this article sucks its all wrong and biased

  10. yo commented on Apr 28

    this article sucks its all wrong and biased

  11. Jboy commented on Oct 3

    Hey I have an idea.

    Lets all move to China. The women in China make good wives.

  12. Jack Mack commented on Oct 24

    due to linguistic,social and media boundaries, China’s overtake of the U.S is certain only to be economic and not much more. Sure, they may get more attention, but the U.S is the country with the strongest companies, the most influential media and the most war heads (sadly we live in a world where that does matter). Also Goldman Sachs predictions show that chinas growth is due to it becoming more insular (i.e less exporting) by small retailers with very few large businesses. 2030 may be the year of china’s overtaking but the U.S still will run the web, the media and the war heads. The overtaking will be hollow, the days of a U.S world will run as long as the T.V stations do.

  13. docter smuck commented on Jun 28

    The U.S is the biggist beast in the world with muscle and mind power there is noway in a million yesrs china will be able to come close to our powerful country,even if this would be the case they will be cut from our trade and then be dared to make a threat so no my friend books will tell you anything to get attention or to sell. i am a guy who love my country and understand

  14. Bib commented on Nov 11

    as pointed out the can’t keep up the rapid growth rate. It will plateau for a multitude of reasons, not the least of which are a closed society and huge gap between poor and rich (can you say labor strikes). When they do open their markets and have normal patents laws like most countries, they’ll be open to a billion lawsuits for all teh technology they have been stealing from western countries these past decades. China intentionally now sends scientists here to learn what they can’t do, they steal the technology take it, home start a company. The gov allows them to do this and even promotes it because it’s making their economy grow. But once they enter the world market as an open player, and the patent laws kick in, scores of companies that have been wronged by chinese theft will begin their lawsuits.

  15. lim commented on Apr 12

    i think there is a potential for china to overtake the US as the world’s largest economy body but this wont happen that soon , may be more than 50 years . i have been to china for times and i saw the big changes everytime i went there . first of all many cities in china are getting more and more modern like those in korea and japan . china is very different from india as india is too under developed and its people are in the extremity of poverty . in china , it is different . although some people are poor especially farmers and labours they work so hard not like my countrymen .

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