Sunday, March 7, 2010

the coming chinese hegemony

a recent Bloomberg article noted that  Goldman Sachs maintained its forecast for 11.4 percent GDP growth for china even after after its central bank raised reserve requirements for lenders twice within a month…as MW666 readers know from this video post, that growth rate extrapolates to a quadrupling of china’s GDP in 12 years…

realizing that gave me cause to dig out this article from Foreign Policy from a few weeks back…

$123,000,000,000,000**China’s estimated economy by the year 2040. Be warned.


In 2040, the Chinese economy will reach $123 trillion, or nearly three times the economic output of the entire globe in 2000. China's per capita income will hit $85,000, more than double the forecast for the European Union, and also much higher than that of India and Japan. In other words, the average Chinese megacity dweller will be living twice as well as the average Frenchman when China goes from a poor country in 2000 to a superrich country in 2040. Although it will not have overtaken the United States in per capita wealth, according to my forecasts, China's share of global GDP -- 40 percent -- will dwarf that of the United States (14 percent) and the European Union (5 percent) 30 years from now. This is what economic hegemony will look like…

continue reading $123,000,000,000,000*

how does this happen? & why does china so quickly develop an economy more than 2 1/2 times that of ours?  in End Of Influence by Brad Delong and Stephen Cohen, we can start to get an idea why we are in decline while china is in ascendancy…

United States is losing the money. America is now massively in debt to foreigners and will be more in debt with each passing year as far into the future as forecasters can see. It will not be squeezed as debt squeezed Britain, but it will be constrained. But it's China that is the biggest holder of U.S. obligations, with some $2.5 trillion in "reserves," the lion's share of it in U.S. debt obligations. America owes unimaginably large amounts of money to lenders (such as China), about $20,000 per American household, three-fourths of China's GDP, a fact worth repeating, a fact that makes rapid repayment impossible. (continue reading End of Influence)

because of distortions caused by currency exchange rates, today’s typically used nominal GDP comparisons between countries are relatively meaningless; for a better measure, purchasing power parity is used; & according to the latest figures the US is at $14.25 trillion and the chinese is at $8.77 trillion…but even by that comparison, the official chinese GDP doesnt include barter elements of their rural economy below the radar of the statisticians , while our GDP is inflated by parasitic activities with no socially redeeming value, such as the casino on wall street, zero-sum financial sector manipulation, zero-sum litigation, tax avoidance schemes & related accounting, etc;…its hard to determine what percentage of our GDP is really “productive”, and what part of just represents legalized manipulation or theft…but we do know that in real measures, china's industrial output already matches that of the US, and that they have passed the US in new car purchases this yearchina also has more internet users, twice as many cell phone users, produces almost ten times as much steel, and its educational system generates more college graduates with science and engineering degrees than ours….china has a virtual monopoly on production of so-called rare earth elements, vital for hybrid cars, most green energy technologies and advanced military hardware, and has restricted their export…its also the world's largest property investment market, & there’s even more about china that you probably dont know


we’ve watched as china has been putting its massive foreign reserves to use buying the resources needed to sustain its growth; it has already loaned $25 billion to secure oil from russia for 20 years, another loan for long term russian gas supplies, and has signed similar long term deals with iran ($100B), brazil ($10B), venezuela ($16B), iraq (20 yr), nigeria ($50B), and a LNG deal with indonesia…with 2.4 trillion of foreign reserves, they have the dollars to price us out of the energy market, as they have already become saudi-arabia’s top oil buyer…they have built or financed major infrastructure projects in more than 35 African countries with Nigeria, Angola, Sudan and Ethiopia receiving the lions share, with an eye to exploit that continents resources…they have also signed a free trade agreement with peru, where they have bought the most productive copper mine on earth, and have reopened free-trade talks with australia, where they procure most of their metal ores, and have agreed to currency swaps with belarus, several asian nations, and argentina, widely seen as a first step towards internationalizing their currency and replacing the dollar in trade; and the yuan is already widely accepted in cross-border trades transacted in cash…

china is also building two coal-fired electricity generating plants a week: China January Power Use Gains 40% as Economy Recovers (Bloomberg) -- “China’s January electricity consumption jumped 40.1 percent from a year earlier as an economic recovery in the world’s second-biggest power producer spurred demand from factories”…according to the World Steel Association, china now produces 47% of the worlds steel; in 2009 China's stainless steel production increased by 26.8% to 8.8mln tons. “In contrast, China's stainless steel apparent consumption rose by 32% to 8.22mln tons, which will affect the nickel demand in short-term” is expected that China's stainless steel production in 2010 will increase by 20% ... For the full year of 2009, China imported 627.78 million tons of iron ore, up 41.6% on 2008

so if theyre not exporting, what are they doing with all that steel?  well, the office and apartment building boom continues, &  it looks like theyre getting more out of their stimulus dollars than we are… here’s a photo gallery of their new hi-speed rail system, fastest in the world, and here are videos of China’s new High speed rail future - the CRH "Harmony "(350kph)…while some have argued that with already high vacancy rates the chinese are overbuilding the cities, with a 350 KPH rail system, outlying populations 200 miles away can commute to work in the cities and still be home for supper…

a recent article about chinese investment in australia gives us a clue about how theyre consuming the worlds resources: Mount Whaleback was once 1,500 feet high. Today it's a hole, the biggest open-pit iron ore mine in the world -- an entire mountain crushed, sold and shipped to China. Ton by ton, including more than 300 million tons of ore per year and vast quantities of liquid natural gas, China is buying Australia. One of the world's most staggeringly huge transfers of natural resources has both enriched and alarmed Australia, and illustrated both China's savvy and ungainliness as it aggressively expands its influence around the world…


a month ago, dani rodrik at project syndicate asked Will China Rule the World?, in reviewing When China Rules the World, by British scholar and journalist Martin Jacques… Jacques is unequivocal: if you think China will be integrated smoothly into a liberal, capitalist, and democratic world system, Jacques argues, you are in for a big surprise. Not only is China the next economic superpower, but the world order that it will construct will look very different from what we have had under American leadership.

Americans and Europeans blithely assume that China will become more like them as its economy develops and its population gets richer. This is a mirage, Jacques says. The Chinese and their government are wedded to a different conception of society and polity: community-based rather than individualist, state-centric rather than liberal, authoritarian rather than democratic. China has 2,000 years of history as a distinct civilization from which to draw strength. It will not simply fold under Western values and institutions.

A world order centered on China will reflect Chinese values rather than Western ones, Jacques argues. Beijing will overshadow New York, the renminbi will replace the dollar, Mandarin will take over from English, and schoolchildren around the world will learn about Zheng He’s voyages of discovery along the Eastern coast of Africa rather than about Vasco de Gama or Christopher Columbus.

Gone will be the evangelism of markets and democracy. China is much less likely to interfere in the internal affairs of sovereign states. But, in return, it will demand that smaller, less powerful states explicitly recognize China’s primacy (just as in the tributary systems of old).

(read the entire rodrik article)

while i doubt americans would ever tolerate paying tribute to another sovereign, we are going to have to make the decision whether we want to be part of china’s world, or a rogue state at war with the rest of the world…as you can see, china will increasingly have control of the dwindling resources we will need to even continue our current standard of living, let alone progress…


  1. That's what happens when supply-side policies create wealth without underlying value while those who do produce authentic underlying value do not share in the wealth.

  2. "Mandarin will take over from English"

    Mandarin is an interesting natural language, but it's impossible that "Mandarin takes over from English" in decades. English will be still the most important langauge for a long time.

    Japanese adopted a lot of Chinese characters, so, some Japanese know the advantages of the Chinese language. A learned Japanese states that Chinese language is very systematic and logic. He looks at Mandarin from a different angle.

    Some people say the sound of Mandarin is poetic.

    I am a published author of 5 wonderful books. I'd say the writing of Chinese characters could be beautiful.


    Actually, learning Mandarin can be entertaining, fun, and joyful!


  3. The same was said about Japan in 1985-1990. While I believe that China will grow by leaps and bounds, that $123T figure is nonsense. What is likely is that China approaches the USA in the next 6 years or so and the USA stagnates or contracts. China then gradually overtakes the USA and slowly grows larger in gross GDP. PPP Per capita? Who knows.

    The USA is spending its stimulus on paying off the bankers and propping up its financial system and paying interest costs.

    The PRC is spending its stimulus on infrastructure and the world's largest CRH/TGV system. They are rumoured to have a second one on tap for August. They have the reserves to do this another 3 times not including this second, rumoured, stimulus. A total of 5 X $596 B stimulus with 18 months of growth for each. They can last another 6 years just on their savings.

    The USA has no savings. Who is in better shape?

  4. Knepperify, we have no disagreement; this post was just an thought experiment in taking exponential growth to its consummate limit, which i referred to in my first paragraph...but only fools and economists believe growth can go on indefinitely...

  5. a bit of nonsense really. Growth in two digit figures cannot continue on indefinitely. Take for instance the Solow swan growth model, the AK model. Even if tech (in all its forms - technical innovation, decrease in trade barriers, increase in market oriented policies etc..), the US just achieve a constant 2% growth rate, similar to their OECD counter parts. What we're going to find, due to the diminishing marginal returns of capital, as well as the average productivity per capital is that the growth path will slowly decrease until it plateaus based on the country's savings rate, depreciation rate, population growth rate and interest rates. Please read some of Barro's papers for more analysis. thanks

  6. Oh and to add on the mention of Jacques book, which I have been reading, I am not entirely surprise if this does happen. What does strike me as surprising is the positive correlation between sinophobia and the increasing Chinese economic and militaristic growth. There is nothing wrong with another peoples rise into the pecking order of the world. The fear comes from the non-conformity doesnt it? But why? Bar militaristic ambitions (which would make the west hypocritical), the world as a whole would benefit from a growing China. So what if you have to learn Mandarin, I have started learning it and it is a beautiful language. Must we be so ignorant? We live in a modern world. Let us embrace change and not try and fight it.

  7. Well this bit of 'screaming into the wind' is a very entertaining read, no doubt...

    I think a dose of basic economics and this posting would've looked a bit different...