China's economic miracle
I was just beginning to enjoy my staycation in the Outerbanks when I caught wind of this interesting piece of economic news on my Bloomberg app and from the NYTimes online. Based on 1H 2010 global economic data, I had planned on posting something when I returned to New York as a follow-up to this piece I wrote earlier this year.
After Japan’s anemic 0.1% economic growth in the 2Q, China has now supplanted its ancient rival as the world’s second-largest economy marking another milestone in the country’s transformation from an impoverished ‘Third World’ communist state to global economic superpower.
In the 2Q this year, China’s GDP totaled $1.34 Trn vs. $1.30 Trn for Japan. It is not the first time that China eclipsed Japan’s economy, according a Bloomberg report, but most economists believe this time the move is permanent. With its red-hot economy growing at around 9% a year, and should current trends continue, China is set to surpass the U.S. as the world’s largest economy by 2020, according to Pricewaterhouse Coopers, while Goldman Sachs analysts estimate 2027, while still others say 2030.
In either case, this most recent economic surge by China along with its financial strength actually carries with it significant geopolitical implications – not least of which is that, now, along with everything else, China can also boast about the following global economic achievements:
China’s spectacular growth since Deng Xiaoping began to introduce free-market reforms three decades ago has seen it bounding up the world league tables of economic powers. Just ten years ago, it was the sixth-largest economy in the world, but has since outperformed Britain and France in 2005, and Germany in 2007. It also overtook Germany as the world’s largest exporter last year, and also supplanted the U.S. as the largest Auto market earlier this year. China’s emergence as a global economic power, as well as a geopolitical force presently exerting its national interests in the Caucasus region, throughout the African continent, and increasingly in Latin America makes the nation undeniably a major player in world affairs.
However, one caveat to China’s incredible growth is that size matters: if China’s economy – or even just its banking system, or just its real estate market – proves to be a bubble, the bursting will have far-reaching implications for the global economy. In addition, as I outlined in another post earlier this year, China’s position in U.S Treasury notes potentially presents a clear threat of economic warfare since Chinese officials have publicly indicated that it retains the right to sell-off its holdings of U.S. Treasury notes in retaliation for U.S. arms sale to Taiwan, among other possible future conflagrations. China’s military has also developed a strategy that uses U.S. Treasury notes as financial WMDs.
Regardless of the when (or even if) China’s economy surpasses America’s (our economy is still three-times larger than theirs), the growth of its economy in the roughly 30 years since the world’s most populous nation started to embrace market-based capitalism is breathtaking.
Clearly there are major problems with China’s modernization push, wide-spread unethical business practices – including horrific working conditions and labor standards, environmental degradation and a massive trade surplus that has major ramifications for the global economy. China’s economic might has also increased its geopolitical influence, certainly within Asia but also on the world stage. Some observers, including Harvard’s Niall Ferguson, believe inevitably that the U.S. and China are on a collision course. I would argue that need not be the case, but, time will tell.
Still, considering the scope of the effort, China’s emergence as an economic powerhouse has been relatively smooth, to date; and it has benefited many of its citizens. According to the United Nations, China has lifted 300 million of its people out of poverty since Den Xiaoping’s government first began the march toward state-controlled capitalism in 1978. Still, the US economy is still three times larger than China’s, and their per capita GNP ranks 17th in the world and its productivity rate, that is output per person, at about $4000, is one-tenth of Japan’s, The WSJ reports. In other words, China still has a very long way to go to compete with us. Depending on your perspective and political leaning, that’s either encouraging, interesting, or outright threatening.
