With all the talk and buzz about China in this election cycle, I thought it may help to post a few facts about this economic foe. To get a feel for the present and the future.
A lot of Americans think that China is the world’s largest economy. Not True. Our GDP is more than double than that of China. However this is changing!
Before 2003 the economy of China was inconsequential, but in 2003 that began to change, China began to consume large amounts of commodities and also buying up the ships needed to move them. Thus began the impact of China on the world economy.
Today China is number 1 in several categories:
- Largest trader
- largest foreign creditor
- biggest contributor to economic growth
- producing ships
- steel
- automobiles
- Largest exporter of goods and services.
Projections are that China’s GDP will top of the US somewhere around 2026. However, this projection is based on China’s growth averaging 7-7.5%, right now it has been increasing at 9-10%. It is also based on The US GDP growth averaging around 2.5% . So if China’s growth continues at the current rate and the US drops below 2.5% (which has been the case) then China could top the US by as early as 2016!
These figures don’t show the whole picture.
They don’t take productivity in account, One hour of US manpower produces 7 1/2 times as much as an hour of Chinese labor.
There is also to LARGE difference in population. 313 million Americans Vs. 1.3 billion Chinese. So on a per capita basis the GDP of China is 16% of the US production.
Living standards; More than half of the Chinese live in rural areas without conveniences such as modern kitchen applicances, cars, paved roads, modern dentistry, or communications. On average about 1/5 of the Chinese have flush toilets.
China is bent on making itself more of a producer of valuable goods, other than just clothes, shoes, and toys. The government is after higher production rates in different areas, some of this both positive and negative for the US.
Alternative Energy. (an area where significant amounts of the stimulus money went)
China is now the predominate manufacturer of solar panels as well as wind turbines. Also equipment for gas exploration in shale formations. This trims the costs for for these items but at the expense of companies producing those very same products here.
China is also looking at jumping into pollution controls, waste-water recycling, electric and hybrid cars, fuel cells, satellites, aircraft, and so on…..
All this is going to contribute to trade problems, Right now the US is mulling over import restrictions on the cheap solar panels and China is putting import duties on US made cars.
Thinking is that the trade surplus with the US is going to shrink due to increasing demand from its own people. Projections are consumer spending will take off in China to as much as 15% a year. This because of rising wages, and an ever growing middle class there. But it will remain one of the world’s largest exporters. This growing middle class and resultant wage increases could be good for the US. We potentially could see increased exports of high-tech items, machinery, power-generation, medical equipment. But the biggest area may very well be in the Agricultural area.
China has accelerated the purchasing of US firms, the Chinese car maker Geely has purchased Volvo from Ford, Lenovo bought IBM’s PC business. As of 2010 China holds over $6 billion in US assets. Congress is watching to insure that China does not get into sensitive US industries such as oil and aircraft. But china is going to continue to buy. They hold over $3 Trillion in foreign currency. There holdings include US Treasury securities as well as Fannie Mae and Freddie Mac Bonds.
Will the yuan replace the Dollar as the world’s reserve currency? Not for years
To do this the value of China’s money MUST float freely and MUST be convertible to other currencies. Right now this is not possible. Also there is no financial system to provide liquidity in China. Investors must also see China as the safest place to put their money. This won’t be possible until the Chinese government is much more transparent.
China is also investing in other countries:
Africa, South America and in Asia. This is being doen to insure the supply of natural resources needed, oil, natural gas, iron ore, etc. They are also setting up free trade pacts with other Asian countries.
China is not expected to change its ways anytime soon when it come to foreign investments. They will continue to let foreigners (including the US) only when and as long as it helps China and doesn’t go against party rule. They do not allow foreign ownership outright so joint ventures will the the norm.
Some things that could be obstacles to China’s climb.
China’s labor force is going to grow more slowly because of their one-child policy. Beginning around 2015 the 35 to 54 year old part of the work force will begin to drop in numbers. This could begin to put a strain on government budgets. There could also be more social unrest as human rights concerns gain more support.
Recently China has provoked confrontations with ships from other countries, it’s military is something that cannot be discounted, they have modernized its forces and upgraded weapons, they now have more than 60 submarines, 6 nuclear, dozens of warships, and coming soon a 2nd aircraft carrier. We are placing more troops in the area, US troops are going to be stationed in Australia.
While we may loose the No. 1 spot in economic size to China, we will still have considerable influence and a lot of assests will not be replaced, a stable government, finanical systems, higher education and a educated, productive population.
Much of what happens will depend on us. How we deal with a decaying infrastructure, improvements to our educational system, getting our economy going, and huge deficits that need to be dealt with.
While some things are invetible we still have control in a lot of the outcome. We need our Federal Government to see the writing on the wall and take action now. More importantly, we need to make sure they see the wall.
This country need to deal with the debt and quit putting it off!
This economy needs to get rolling! I believe the best way to get it going is for the Federal Government to get out of the way!
