A true giant of the twentieth century, it seems might be asleep.
Another giant awakens: There was a telling graph in the WSJ this past week. In the last 15 years China has surpassed the US as the largest consumer of oil.(http://online.wsj.com/article/SB10001424052748703720504575376712353150310.html )
The scale of development in China and its pace has been never seen in History before. The way they showcased their Olympics was stunning in their confidence, showmanship and scale!
Every century has had a leader, France, Britain, US - the 21st Century is surely China's?
When elephants Dance: The cold war was a political struggle between the US and the Soviets. We are about to potentially witness one for economic supremacy between the US and China. When elephants dance, the grass gets trampled - so the rest should be watchful for collateral damage.
The odds for China do appear strong:
- dynamic economy with a 30 yr track record
- focused leadership willing to trade off benefits of a liberal democracy for stability and growth
- biggest holder of US debt
- working off a sharply lower base
Odds against the US also appear daunting:
- Installed interest base that fights and thwarts
- Huge debt
- Aging population
A bet: A basic statistic first. The Per Capita Income in the US is $46K and averages $35K in the developed world. China is at $3,600 and India $1,100. As sheer arithmetic, a modicum of growth in India and China will show big percentage lift vs a bigger base such as the US. I want posit that as context before we jump to writing obituaries.
Also, before weighing in to comment on the current economic situation, I also wanted to say that it is very important to study demographic trends, political climate and enthusiasm for economic activity as key underlying variables that can predict future growth.
For all the fear, worry and doomsday predictions, the US is neither in decline nor in real trouble. The underlying variables as I have pointed out above are incredibly strong including a highly mobile society capable of reinventing itself. When the U.S. baby boomers retire, they are not going to sit in a rest home. They will be a young strapping 60 and will be energizing the country in new ways - their 'second act'. Indeed baby boomers re-entering the workforce will profoundly alter the work force like it did when women entered the workforce in the 70s.
A unipolar world was never sustainable anyway. So we will be back to a comfortable bi-polar world where the contest will not be political philosophy but economic supremacy.
These two engines will power the world's economic growth; and as far as I am concerned, for my money, I would not bet against the dollar.
4 comments:
i'll let you know my thoughts when i'm back from china in september. i agree that the ascension of china is clear but also doesn't axiomatically imply the decline of the u.s. i wouldn't say, though, that the fight will be economic and not political. the chinese will catch and surpass us in many areas: they've crushed us in manufacturing based on low wages, and green tech will be the first huge next generation industry where they will lead. as that happens, americans will be drawn towards their centralized structure, or at least aspects of it.
China does have a lot going for it to be one of the super economies ("one of the two engines" of the world as you aptly put it).
From a market perspective:
Australasian and many other super funds love the emerging market opportunities that China has to offer. Yet, they still have far too many restrictions in place to appeal to the psyche of "traditional investors"; access, liquidity, speed of execution add a lot of charisma to assets. The Chinese markets still lack these (in comparison to US and other major players). Their recent moves to relax foreign investment restrictions in their economy (better access to their bond markets) seems to be a step towards internationalizing the Yuan. The greenback would probably remain a thoroughfare for global monetary markets for a long time to come, though. If just a Lehman's triggered a global economic crisis, then the repercussions of adapting a new superior reserve currency is incomprehensible. EUR's been there but the EU have their own problems and strictly speaking it's not a single nation currency. And will China provide CNY access to such an extent in the first place? It's all one big euthanasia debate.
From a political perspective:
Censorship of information (such as the Google saga) and relatively dictatorial govt. policies (executions?) can be easily perceived as 'impediments' to their progress by the rest of the world. America did it through freedom of speech, human rights and laissez faire competition. It would be interesting to observe whether China can simultaneously hold its pace of growth, progress and power in absolute terms and retain its "restrictive culture" or would US just make it a super power through an exponential debt crisis.
Perhaps there are three factors that come in the way of India and China becoming dominating global powers as US did in the last century.
1. Wages are increasing rapidly and cheap labor as a factor of growth(as it is now) might slow down these economies. One of the main reasons for the rapid economic growth of China is that all major companies have been locating their businesses in China due to cheap labor.
2. Corruption and restrictions for starting and running the companies will slow down large scale expansion of industrial base. Both countries have their own form of restrictions - as US companies are finding now (Google is an example).
3. The most important reason why US succeeded and continue to succeed industrially and economically is the individual freedom to excel in the fields of their choice.
China's growth is truly impressive, and if you go there you can see why. The feel of entrrepeurism just fills the air, from the mobile phone tiny shops, to the very good food stands on the streets. However, the transition from totalitarian to some form of democracy has to happen sometime, and it is whether it is a long drawn out fight or a russian style fast transition. The way this occurs will affect the economy of the world.
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