[Op-ed] China will rule the world in 30 years!

[ArmorPierce]

What Ray says is true. I recall reading and watching that even during the time of the Spanish and Portuguese colonial empire, a lot of the wealth was funneled to the east. It wasn't until the start of industrialization that this trend began to reverse.

[Thanas]

If I recall things correctly, I thought that the various European powers have a pretty long history of buying more stuff from the various far eastern states than selling their products to them?

That says nothing on the strength of an economy per se. For example, the USA today buys far more from Europe than it sells to Europe, yet the USA is still the strongest single economy. Furthermore, just saying "they bought more" is of little help unless one can quantify how much. A lot of that trade was in low volume, high gain products like silk and spices, which are luxury products that do not affect anybody outside the upper 2-5% of the population.

Is there any books that focus on trade relations in the classical era?

Yeah, but I wouldn't feel comfortable just listing any of them as it has been a long time since I focused on the Roman economy and I am not sure I get all the details correct on them.

[Surlethe]

{{{yawn}}}

20 years ago everyone was saying the Japanese were going to take over the world. Similar overblown estimates of an every-growing economy were bandied about.

You're right, but I think there certainly is a qualitative difference between the two situations. In 1990, Japan was a fully industrialized country; today, China is still in the process of industrializing. So I think that Chinese growth can continue sustainably at these levels for quite some time because it is still getting the means of production to its citizens; Japan, meanwhile, is pretty much unable to sustain this sort of explosive growth for any period of length because its economy is already saturated with modern capital.

[paladin]

I read an article over the weekend that was predicting an economic collapse in China because the Chinese government is "cooking the books."

[J]

The main problem facing China is energy, a first world $85k/person/year economy requires 1st world energy consumption levels unless China wants to try the Iceland model of Ponzi banking. Take China's current energy use and multiply it by about 5-8. As a ballpark figure this would be about the same energy consumption as the US and EU put together. To satisfy this need would require around 1.5TW worth of additional power plants and 30 million barrels a day of oil on top of what they currently consume.

The power plants are doable, however that's going to be one heck of a pollution problem since most of them will need to be coal as the infrastructure required to pump out a shiny new nuclear plant every month doesn't yet exist. Unless of course they decide the heck with it and spam out RBMKs, or possibly CANDUs. The oil, hmmm...we're going to have a problem there. At best there's a large bidding war which will make $150 oil look cheap, that's going to put a crimp in the growth rate. Recall that the US economy shrank following the big spikes in oil prices in 1973, 1979, and 2007 (the last doesn't really count since everything else was starting to fall apart by then, though I maintain that even if everything held together it would've slowed growth). A rapidly growing and industrializing economy requires tons of affordable energy resources, it's only when the economy reaches a relatively mature state that energy use levels off and begins to fall due to efficiency gains. Worst case, Spartafreedomerica becomes upset with China hogging the world's oil supply and decides to make some "accidents" happen. I shall refer interested readers to the appropriate Patrick Robinson novels. Actually it was French who went around blowing up oil terminals in those books, but the idea's the same.

Going back to the Chinese economy as a whole, they'll also have to transition from a manufacturing based economy where manufacturing is nearly half their GDP to a service based consumer economy where making things is only 10-15% of the economy. For a $120 trillion economy that's around $14 trillion in manufacturing, or equal to the entire US economy, which implies that their current manufacturing base has to be about 7 times bigger than it is now. That's not quite as bad as it sounds since instead of making poisoned baby food for a penny it'll now cost a nickel so they won't have to add that much to their manufacturing capacity, the factories just get upgraded to make higher value added goods.

Which brings us to consumption, someone has to buy all that stuff and the only way I can think of doing it in 30 years is implementing the Henry Ford model on a national scale for their entire manufacturing sector. That's not going to be easy.

In theory it's possible for China to have a $123 trillion economy in 30 years, but everything has to go just right and there's no margin for error. One little hiccup and it all falls apart, it's a lottery bet and the odds are about the same.

[K. A. Pital]

$85k/person? $25-40 k pc is enough for a very good decent first world life. Korea, Sweden, Finland, Netherlands. Who in the world even needs 85K per person?

Worst case, Spartafreedomerica becomes upset with China hogging the world's oil supply and decides to make some "accidents" happen. I shall refer interested readers to the appropriate Patrick Robinson novels.

Oh, I would assume that would happen anyway once the oil demand heats up again.

Going back to the Chinese economy as a whole, they'll also have to transition from a manufacturing based economy where manufacturing is nearly half their GDP to a service based consumer economy where making things is only 10-15% of the economy

They can't do that. How? "Service based" economy presumes that industry is heavily outsourced - no first world service economy is self-sufficient, and most of them rely on cheap Second/Third world goods to maintain their life level - very cheap consumer goods are bought from abroad while services are rendered inside the nation. I have yet to see a viable source of outsourcing for China itself. The proportion shift of industry to services in the First World is a phenomenon that requires a cheap consumer good manufacturing base located outside the First World. China will have no such luck, I fear.

Besides, it's not like a large manufacturing economy cannot already grant it's citizens a very high life level. It can. "Services" are just icing on the cake, not to mention most of them are extensions of manufacturing processes.

[Broomstick]

$85k/person? $25-40 k pc is enough for a very good decent first world life. Korea, Sweden, Finland, Netherlands. Who in the world even needs 85K per person?

Even in the US the average yearly wage is no more than half of 85k. I wasn't making 85k when I was living debt-free, saving money, and flying airplanes for a hobby. Would I like 85k? Sure. But I don't need it.

[Ypoknons]

Hell, the average Hong Kong college graduate is barely 12K a month (with barely any taxes). 85K for China in 30 years... as J said, power and resource consumption will be astronomical.

[His Divine Shadow]

Based on what I am hearing from local sources, outsourcing to China has reversed in some placed in Sweden and Finland. I've heard cited problems with quality, corruption, etc. leading to the company shutting down or reducing it's presence and starting up operations back home again.. I wonder if we will see more industry/manufacturing jobs return to the western countries as China grows and the same kind of disparity in pay for labor shrinks. There's also the issue of how rising transportation costs will factor into this, which to me is a total x-factor.

Also, might China begin outsource to other less developed countries later when it's own production costs rise too high, maybe Africa? Probably not though, they'll probably just keep on being raped for their mineral wealth and such.

[mr friendly guy]

85 K a year might be necessary if you want to be well off and living in ridiculously expensive places like, oh how about Tokyo (where Japan is experiencing a rising number of so called "working poor") or some parts of Australia where the property market is overpriced and isn't crashing anytime soon (while you could have a decent life on lower, to break into the property market you most likely need a high income).

I just find 85 K a year seem a bit much considering the cost of living in China currently (unless one envisages the cost to rise ridiculously). I think Lusankanya mentioned that a bowl of soup in China cost less than 1 USD, and thats the places which rips you off. Contrast to me buying soup in Sydney, Australia, cost like $15 AUD (? maybe $13-14 USD at the exchange rates during that time). That being said I thought that prediction of 123 trillion was on the high side anyway so the average Chinese citizen wouldn't really need that high an income anyway to have a good standard of living. They just need adequate government support for things like health care and to save as well as spend, unlike modern day America.

The other issue of interest is power consumption. Nuclear can cover a lot of household and industry power requirements, and allow them to take the load off coal power stations even though China's newer coal stations are more energy efficient than before (IIRC more energy efficient than US ones).

The problem lies in things like transportation, with China likely to be the bigger car market in a few years. Personally without having done too much research (so those more knowledgeable can correct me), I think this problem can be alleviated with a combination of good public transport plus electric cars.

In terms of public transport systems China has already acquired fast trains including one built by Germany, and are planning to build more railway lines including connecting the economic hubs of Beijing and Shanghai. They also have trains connecting the more prosperous eastern regions with their western regions ie to Tibet.

China also already has a company that produces electric cars. The problem with current technology is that the car can only go a top speed of 140 kpm and has slow acceleration time ie 0-100 kph in 14 seconds. However this isn't really that much of a problem in metropolitan areas (since we expect by 2040 more Chinese would be urbanised) moreoever given how the average Chinese driver drives, having a limited speed and acceleration is most probably a good thing.

source where I found out about the Chinese electric car

[mr friendly guy]

Oh one question. When people talk about transitioning to a services based economy, what exactly do you mean? For example what services does China not provide by itself which it should providing at the cost of manufacturing if this transition occurs?

[K. A. Pital]

Moreoever given how the average Chinese driver drives, having a limited speed and acceleration is most probably a good thing

China has a bad driving record per capita (I mean, per driver)? More traffic accidents than other nations?

I always thought Russia holds a grim record here with 30-40 thousand dead each year. Moreover, when I was in China, driving seemed quite safe to me. I haven't seen many crashes (it's impossible not to see at least one during a day in a large Russian city) - almost none in fact.

[Surlethe]

They can't do that. How? "Service based" economy presumes that industry is heavily outsourced - no first world service economy is self-sufficient, and most of them rely on cheap Second/Third world goods to maintain their life level - very cheap consumer goods are bought from abroad while services are rendered inside the nation. I have yet to see a viable source of outsourcing for China itself. The proportion shift of industry to services in the First World is a phenomenon that requires a cheap consumer good manufacturing base located outside the First World. China will have no such luck, I fear.

Three points.

First, India and Africa will still be very poor, so they'll have a comparative advantage in cheap consumer good manufacturing; we could well see Chinese industry outsourced to those places. Second, China might maintain its comparative advantage in cheap labor over the First World, and we'd see China continue to supply relatively cheap goods to the First World as well as its own citizens -- manufacturing would remain a proportionally larger part of the Chinese economy and a proportionally smaller part of the First World economy.

Third, I don't think it's necessary that manufacturing remain a large fraction of a (relatively) self-sufficient First World economy. As manufacturing becomes more efficient, all else equal it will shrink as a proportion of expenditure -- draw an analogy with agriculture, which drastically shrinks as a proportion of the economy when it transitions from Third to Second to First World. For a futuristic example, when factories are staffed entirely with robots, expenditure on manufacturing will be proportionally less than the same factories staffed by union workers. Now, this isn't to say that the First World has outsourced its manufacturing; it's just to say that China could be able to reach First World living conditions without outsourcing its industrial base.

[Surlethe]

The power plants are doable, however that's going to be one heck of a pollution problem since most of them will need to be coal as the infrastructure required to pump out a shiny new nuclear plant every month doesn't yet exist. Unless of course they decide the heck with it and spam out RBMKs, or possibly CANDUs. The oil, hmmm...we're going to have a problem there. At best there's a large bidding war which will make $150 oil look cheap, that's going to put a crimp in the growth rate. Recall that the US economy shrank following the big spikes in oil prices in 1973, 1979, and 2007 (the last doesn't really count since everything else was starting to fall apart by then, though I maintain that even if everything held together it would've slowed growth).

I wouldn't be surprised if they spam RBMKs or CANDUs -- aren't they starting to do that already? I'd submit that absolute (long-run) Chinese growth will decline during the oil crisis, but will remain proportionally higher than the First World's for the simple reason that the introduction of any new capital will induce greater productivity gains in China than in the First World. Moreover, China is still relatively inefficient and still developing, so it will be proportionally easier for them to switch to an infrastructure that doesn't depend so much on oil, whereas the cost of the sectoral shifts in the First World will be much (proportionally) higher (in the US in particular).

[K. A. Pital]

Yes, technology advantages are one way to do it. Once China's manufacturing sector becomes more and more capital-intensive they will have moved up another notch.

[Lusankya]

I just find 85 K a year seem a bit much considering the cost of living in China currently (unless one envisages the cost to rise ridiculously). I think Lusankanya mentioned that a bowl of soup in China cost less than 1 USD, and thats the places which rips you off. Contrast to me buying soup in Sydney, Australia, cost like $15 AUD (? maybe $13-14 USD at the exchange rates during that time).

Yeah. 10,000RMB/month (or just over a fifth of the figure J gave) is a good salary, and is enough for a comfortably middle-class lifestyle in Shanghai. Obviously, less money would be needed elsewhere.

That being said I thought that prediction of 123 trillion was on the high side anyway so the average Chinese citizen wouldn't really need that high an income anyway to have a good standard of living. They just need adequate government support for things like health care and to save as well as spend, unlike modern day America.

This is true: the lack of a social safety net is one of the big things hampering local Chinese consumption.

[GrandMasterTerwynn]

$85k/person? $25-40 k pc is enough for a very good decent first world life. Korea, Sweden, Finland, Netherlands. Who in the world even needs 85K per person?

Even in the US the average yearly wage is no more than half of 85k. I wasn't making 85k when I was living debt-free, saving money, and flying airplanes for a hobby. Would I like 85k? Sure. But I don't need it.

$85k per person per year only sort of makes sense if it was inclusive of things such as employer-subsidized benefits (such as health care, pension/retirement plans, and the like) and growth of retirement savings. Even then, I think someone would have to be making over $60k/year in wages to get that much non-wage income; so it still seems rather over-inflated.

[mr friendly guy]

Moreoever given how the average Chinese driver drives, having a limited speed and acceleration is most probably a good thing

China has a bad driving record per capita (I mean, per driver)? More traffic accidents than other nations?

I always thought Russia holds a grim record here with 30-40 thousand dead each year. Moreover, when I was in China, driving seemed quite safe to me. I haven't seen many crashes (it's impossible not to see at least one during a day in a large Russian city) - almost none in fact.

I don't have statistics. Its just from various articles I read about how Chinese drivers drive, ie aggressively albeit they supposedly don't speed as much which compensates for things. In China the road rules (and roads themselves) are different from what I am used to. That is the roads are wider than over here and traffic is such that its hard to cross the street between cars. My guide told us just to walk slowly and stop in the middle of the road if you can't reach the other side and the vehicles should move to avoid you (which becomes harder for them to do it you try to rush across the street). Hence my statement about slower cars wouldn't be a bad thing.

Needless to say this method of "traffic etiquette" is totally different from various countries I have been to, so it can be unsettling for those who are unused to this, especially with the pedesterian stopping in the middle of the road thing.

First, India and Africa will still be very poor, so they'll have a comparative advantage in cheap consumer good manufacturing; we could well see Chinese industry outsourced to those places. Second, China might maintain its comparative advantage in cheap labor over the First World, and we'd see China continue to supply relatively cheap goods to the First World as well as its own citizens -- manufacturing would remain a proportionally larger part of the Chinese economy and a proportionally smaller part of the First World economy.

From memory, Time magazine reported some African countries were cheaper (not sure about quality of workmanship though) than China in terms of manufacturing cost. This was late 90s early 00's. The reason they are not popular, is that comparatively the PRC is relatively stable politically speaking. Now China has taken a risk in political hot spots where other countries wouldn't touch with a ten foot pole * so its not inconceivable they will outsource. I do remember a CNN article where during the height of the GFC they were showing parts of China being affected, and included a story about Chinese business (manufacturing bike helmets) outsourced it to Vietnam. However time will tell, and I do agree with Stas. Having 1/5 the income of an American still leads to good living, whilst outsourcing your manufacturing sector (even if it leads to improve standard of living in the form of cheaper goods) comes with its own risk as many many people on the board have complained about over the years.


* for example the mines in PNG which Australia tried ages to get working but the civil strife made it impossible

[aerius]

I wouldn't be surprised if they spam RBMKs or CANDUs -- aren't they starting to do that already?

China's got 2 CANDU units and there's early talks of possibly getting a couple more, don't know about RBMKs though.

I'd submit that absolute (long-run) Chinese growth will decline during the oil crisis, but will remain proportionally higher than the First World's for the simple reason that the introduction of any new capital will induce greater productivity gains in China than in the First World. Moreover, China is still relatively inefficient and still developing, so it will be proportionally easier for them to switch to an infrastructure that doesn't depend so much on oil, whereas the cost of the sectoral shifts in the First World will be much (proportionally) higher (in the US in particular).

Barring an outright collapse of some sort, I'd be shocked if China's growth doesn't remain higher than that of the 1st world. We in the 1st world don't really have much growth, we've just managed to shuffle a bunch of papers around for the last 10-20 years and claim that we do. When that fails you end up like Iceland and it looks like Greece is headed that way too unless they get a bailout from the EU.

But to be honest, do we really need growth? We live damn well for the most part and many of us already have more crap than we really need thanks to the consumer culture brainwashing we get every day. I wouldn't mind just settling down and chillin'.

[mr friendly guy]

Because I am too tired to look up the IMF website at its source I will just look at wiki's reproduction. However it seems that in terms of PPP / capita South Korea is 27,692, China is 5,970 whilst Taiwan is 30,912. Compared to us (Australia) at 36,918 and Japan at 34,116. So if China PPP/capita becomes the same as South Korea (the lowest of the other countries selected) its GDP (nominal, not PPP) will become larger than US by just under 40%. *

While its obvious China could reach a bigger economy than the US without having the average citizen living to first world standards, the numbers do suggest the quality of living will come pretty close to existing countries which already enjoy a good quality of living.

* Note figures from IMF, may vary if you use the world bank or the CIA fact book.

[TheKwas]

I don't have much to add but a simple graph that will put China's recent growth a bit more in perspective:


China's growth rates are extremely impressive, but it's hard to underestimate just how much smaller the starting stock is in China's case as well. Nearly 200% growth over 13 years in China is still smaller than 24% growth in western countries, and we shouldn't expect China's growth rates to continue at their current rate if China's already hitting some of their material and resource limits. On the contrary, we should expect those growth rates converge to their 'steady-state' value.

China will certainly be an extremely important international player on the international stage, and perhaps even the most important player, but short of a complete collapse in the west they will never have the same sort of world dominance that America has now or that Britain had in the 19th century.

[K. A. Pital]

China will certainly be an extremely important international player on the international stage, and perhaps even the most important player, but short of a complete collapse in the west they will never have the same sort of world dominance that America has now or that Britain had in the 19th century.

What is a complete collapse, anyhow? What of a slow decline? Nations rise and fall; the British Empire's rapid, sudden and decline comes to mind. Britain falls slowly, it took a century and some more - but unavoidably.

The "collapse" of the West may be merely a slow decline and when China becomes the largest economy by sheer size; slowly it will reach a moderately Second World GDP per capita (say, $18 000).

You are also looking at per capita rates, which are gouging the efficiency divider per individual with no concern to scale. This should put it into perspective, then: around 1 billion people increased their productivity 200%. The other ~600 million or so First Worlders increased their productivity by 24%. (Crudely excluded those of non-working age).

[His Divine Shadow]

Barring an outright collapse of some sort, I'd be shocked if China's growth doesn't remain higher than that of the 1st world. We in the 1st world don't really have much growth, we've just managed to shuffle a bunch of papers around for the last 10-20 years and claim that we do. When that fails you end up like Iceland and it looks like Greece is headed that way too unless they get a bailout from the EU.

But to be honest, do we really need growth? We live damn well for the most part and many of us already have more crap than we really need thanks to the consumer culture brainwashing we get every day. I wouldn't mind just settling down and chillin'.

Doesn't China have extensive enviromental problems? There was an article some years ago about it here and how it could eat up some seriously large amounts of their GDP. The latest book by Jared Diamond was not encouraging reading either...

[K. A. Pital]

Doesn't China have extensive enviromental problems?

Britain survived the smog of London and Tokyo survived air sold in cans and air-mask wearing police officers. Once industrialization is finished, the pollution shall lower intensity.

[TheKwas]

What is a complete collapse, anyhow? What of a slow decline? Nations rise and fall; the British Empire's rapid, sudden and decline comes to mind. Britain falls slowly, it took a century and some more - but unavoidably.

I apologize, I misspoke. I meant to say that China will not rule the world within the 30-50 year timespan implied by the original article. Extremely important player, yes; dominate postion, no.

Given centuries, Mongolia may just rise to superpower status again for all we know.