May 02 2008
china = the dominant superpower by 2015?
CNN Money ran an article the other day with a title that made me want to read it: “You Have 7 Years to Learn Mandarin”. Oh really? Why so you might ask? My original thinking is because the Chinese business (and therefore legal) market would become too saturated with ex-pats and half-pats to break in. I was wrong. Instead, the article talks about a prediction that China will be the world’s economic superpower by… 2015. 2015? You got to be joking. But that’s what CNN is peddling to an unsuspecting public:
Back in 2001 when the International Olympic Committee chose Beijing as the site of this summer’s games, the event was meant to mark China’s debut as a player on the global economic stage. But a recent study by the economist Angus Maddison projects that China will become the world’s dominant economic superpower much sooner than expected – not in 2050, but in 2015.
While short-term investors are already cashing in on China’s growth by playing the global commodities boom, smart long-term thinkers are contemplating what happens when China matures from an exporter of cheap goods to a competitor in sectors where the U.S. is dominant – technology, brand building, finance. China has almost wiped U.S. makers of low-value items like toys and socks, but by 2015 it may threaten Apple (AAPL, Fortune 500), J.P. Morgan Chase (JPM, Fortune 500), and Procter & Gamble (PG, Fortune 500). It will increasingly influence the S&P 500 and the mutual funds in our 401(k)s. So it’s worth looking at how that will happen, what it means, and what anyone can do in the seven years before the baton is passed.
Just using the exchange rate to convert China’s GDP into dollars isn’t helpful in comparing the two economies, because China controls its exchange rate; by that method, China’s economy might not pass America’s for decades. Exchange rates apply only to tradable products and services; they aren’t very useful in valuing nontradable goods in a country like China that is much poorer than the United States. So we need some way to compare the real value of China’s economic output with America’s, and economists have developed one. It is called purchasing power parity.
Angus Maddison’s forecast (which uses purchasing power parity) isn’t built on outlandish assumptions. He assumes China’s growth will slow way down year by year, and America’s will average about 2.6% annually, which seems reasonable. But because China has grown so stupendously during the past decade, it should still be able to take the crown in just seven more years.
If that happens, America will close out a 125-year run as the No. 1 economy. We assumed the title in 1890 from – guess who. Britain? France? No. The world’s largest economy until 1890 was China’s. That’s why Maddison says he expects China to “resume its natural role as the world’s largest economy by 2015.” That scenario makes sense.
China was the largest economy for centuries because everyone had the same type of economy – subsistence – and so the country with the most people would be economically biggest. Then the Industrial Revolution sent the West on a more prosperous path. Now the world is returning to a common economy, this time technology- and information-based, so once again population triumphs.
Where do I even begin? I think the 2015 number is built on a number that heavily favors anyone who wants to make grand declarations about China catching up quickly. In fact, last I remember, when Rich Brubaker at All Roads posted that China would catch up by 2028, we all took that number with quite a bit of skepticism. Sure, you can choose one particular figure to represent your claim? But this sort of economics… well, it seems more sensationalistic to me than realistic. Nor will it reflect reality. I doubt in 7 years that value-added industries, the service professions, will be ceded over to China. Hardly–that’s exactly what the U.S., EU, and other Asian Tigers will try to specialize in. So I think the 2015 stats were more shock value than anything else.
I also doubt that China have companies that can play along to the tune of Apple or JP Morgan. Or even Samsung. Not that China doesn’t have some successful companies, or some that have catchet like Lenovo. (okay, Lenovo didn’t have it… they bought it from IBM when they took over the Thinkpad series, which had serious cachet) The Chinese economy isn’t built on innovation and product advancement in the same way that other economies are. The educational system doesn’t embrace such thinking yet. So I doubt that we’ll see that. We will see SOE’s flexing their muscles more. I expect that. But I really don’t think a Chinese computer company will over take Apple in terms of computer and culture maker. Not by 2015.
The global economy is not a subsistence economy. It’s different. It’s more like a pyramid scheme in terms of value added industries. There is a reason why the west dominates in consulting still–because white collar professions, which are services and about “value”, have existed far longer there than in China. And it will be that pyramid for some time still, I am not saying that the Chinese services industry and other higher food chain type businesses won’t evolve. They will. They just won’t overtake the world by 2015.
I think that’s where the conclusion of the CNN Money article is going:
For companies: Focus on getting better at your highest-value activities. Just because the Chinese will be fighting you in the same industries doesn’t mean you’ll lose.
For individuals: You can avoid competition with Chinese workers by doing place-based work, which ranges in value from highly skilled (emergency-room surgery) to menial (pouring concrete). But the many people who do information-based work, which is most subject to competition, will have to get dramatically better to be worth what they cost.
I agree with the advice for companies. It’s a global food chain or pyramid more than a subsistence economy. I disagree slightly for individuals. Why? Because I don’t think information services will require that the west gets dramatically better. It just needs to stay a few steps ahead.
If you don’t want to hurt the feeling of the Chinese people, you better say China is the dominating super power today, if not last year.
Bill:
True, but my goal isn’t to hurt or please people’s feelings. It’s to give good commentary on law and business related issues. Common sense should prevail over people’s feelings–and on the internet and in the blogosphere in particular, that is sadly not the case.
[...] admin wrote an interesting post today onHere’s a quick excerptCNN Money ran an article the other day with a title that made me want to read it: “You Have 7 Years to Learn Mandarin”. Oh really? Why so you might ask? My original thinking is because the Chinese business (and therefore legal) market … [...]
I think (or at least hope!) that Bill was being sarcastic
Of course, but I am trained to be risk averse in case he was serious!
What does dominant economic superpower even mean? I’ll take $46,000 per capita GDP to $5,300 (or the ~$10k needed to overtake the US) any day! The difference gives us more cash to throw around. With excess cash to throw around the US, its citizens, can affect the world economy to a much greater extent than China which will need to continue absorbing from outside to provide for its citizens. The comparison to Silicon Valley that the author of that article makes is also ridiculous given that SV’s wealth was built in a unique moment in history, the start of a whole new virtual world. To end the paragraph with a non-sequitur, an SOE flexing its muscles sounds like a workout regimen for waste.
Maybe CNN’s just trying to get back in China’s good graces with fawning commentary and poor reporting?
It’s okay, everyone predicted that Japan would overtake the US in the 1980s…it’s just sensationalist reporting, particularly when the US goes through a recession every so often. Just laugh it off, point out the flaws, and move on.
Great commentary Mr. Chow. Especially:
“The Chinese economy isn’t built on innovation and product advancement in the same way that other economies are. The educational system doesn’t embrace such thinking yet. So I doubt that we’ll see that.”
As a teacher in China, I can vouch for your claim that innovative and creative thinking aren’t taught or even encouaged. It’s all rote memorization here, although I have high hopes that will be changing soon. The most popular brands in China are all knock-offs of American/European logos and styles. The general opinion seems to be, why make something new when a copy will do (and is profitable)?
Teacher Sauer:
Thanks for the compliment. I agree totally with you: I don’t see innovation happening until it is profitable for the Chinese people to become innovative… and even then, it’s hard to say how long it will take to break the rote memorization education cycle.
Demerzel:
Couldn’t agree more. Sometimes I wish reporting wasn’t so sensationalist, but I guess it’s tougher to sell papers without it.
Just want to remind some guys, a considerable numbers of Chinese people are clear enough that there is still a long way to go before becoming the so called superpower.
Swoo,
I agree with you on that. Perhaps I should have limited my comments to more sensationalist journalists and economists (and political economists) here in the West who keep wanting to trump up China’s new status as a superpower for a number of reasons: selling newspaper, creating fears/excitement about China relations, etc. I think we all know China is becoming a superpower, but for it to be THE superpower, it will take some time.
There are a lot of misconceptions about China and half truth swelling around the presses around the world, more so with the Western media somehow I don’t know why. The truth is China was a great nation and centre of innovation and inventions before. In the 20th century, the nation suffered alot, primarily through poor leadership and arrogance. They belittled the West and underestimated the capacity of the West, strangely enoughly, now the West are repeating what the Chinese did, that is to belittle the Chinese and underestimating them.
If you look at some statistics, China has already overtaken US as the largest auto market, the largest emitter of green house gases, the largest importer of fossil fuel, the largest trading partner of many countries, the largest mobile phone market, the largest foreign reserves, the largest Internet users and the list goes on. China is aggressively upgrading her infrastructure, just only this week, they have announced the fastest train from Guangzhou to Wuhan, using a hybrid of technologies just like what Japan did before they became a technologically advanced nation. China is learning and trust me they are learning fast.
As a Chinese myself, I have one thing to tell you, is that the Chinese has one excellent attribute and that is they are not afraid to work hard to achieve their ambition. I have personally experienced occasions where the Brits in particular, are not interested in work, not that they are lazy but the motivation is not there. I say this is a problem with altitude, if you do not have the right altitude, no one can help you, and you can’t go on blaming anyone but yourself. Coincidentally, history has a uncanny accuracy in predicting the decline of an empire or culture and this trend is just one dimension to that event. So my message to the Brits, please buck up and stop been so rude to others, take a good look at yourself in the mirror, you did well by piggybacking on the riches of others, to be crude you plundered others wealth by your colonising days and wake up, your time is up. If you don’t buck up, you should gladly change your national anthem from God Save the Queen to God Save the Brits, I am not joking, I mean it.
The West has a lot to learn from the Chinese and likewise the Chinese has even more to learn from the West. We should learn to be humble and be respectful of one another, after all this is a small planet and we need to cooperate with each other to ensure we coexist peacefully.
There are alot of challenges in this world and top on the list is climate change. China must take leadership and I sense they know that, they are doing all they can to do their part. The West on their part should work with China on climate change, be diplomatic and don’t push them to a corner. China does not work well if pushed but wonders happen if you persuade.
Before I end here, I do have one thing to tell the Chinese people, money is not everything, you should also learn to share your wealth with the less fortunate. What you have done in Africa is good, building hospitals, bridges, highways, etc and you must keep this up. The Africans are not stupid, they will ask why are you doing this, is there an ulterior motive, so be sincere, do this without asking for something in return. Also, what I think the Chinese people can do better is the treat your own kind better. A culture is only sophisticated if they know how to treat their own well. Stop bullying your own, give them some space to speak their mind, they mean well, do not fear them, give them a channel to voice their concerns. Work with them to improve the situation, not shut them out.
Whether China becomes a superpower in 2015 or not, to me is immaterial. What is important is how we live peacefully together in this planet and make the most of the limited resources we have and ensure that we do not destroy them for the sake of our future generations.
Dfly, as an American technological advisor in Mainland China, I agree with majority of your statements and opinions. (although you could have voiced the Anti-British sentiment in a more casual way)
What most fail to mention was the growing military prowess of Mainland China in conjunction to her economy bloom which favors China over any other States (Japan – disarmament, India and Brazil – Passionate weapon purchasers) as the eventual successor of the United States.
In addition, we have to be clear that any developing nation has to face a “Cheap Labor” stage. (Although the era was shorter for Japan and South Korea due to the Cold War) Regardless, from personal experience, China is doing extremely well given the current inhibited western technology transfers.
I believe nearly everyone has residual descrimination for China, frankly, I share some too. However, we must recognize truths and embrace them. Otherwise, we will be the ones left descriminated. While 2015 is a bit too early, 2028 isn’t. I am a firm believer of the proverb “The early bird catches the worm.”
Dear Successor, Americans are certainly a pragmatic lot and you are no different, btw this is a compliment. I am not trying to thumb the Brits down, but I believe in shock treatment just like a medic applying electric shock to a patient whose heartbeat has stopped. On the contrary, I am a great admirer of the British system, the education, rule of law, governance, these are far superior to any you can find on this planet. I myself was a fortunate beneficiary of this system, however, I am seeing signs of “decay” in their culture and complacency. Frankly, they need to wake up and accept the fact that their glories days are way behind them, no one owe them a living. My parents always taught me that there is no such thing as a free lunch, you have to work to make your keep. So I sincerely hope the Brits will realise this and take steps to arrest their cultural decline.
Frankly, no country should fear any other, they should focus more on their own shortcomings, and try to learn from others. At the end of the day, we need to learn from one another, there is always something to learn from each other. We should learn to live harmoniously together, our planet is all we have got and this is a precious planet, let us not ruin it for the sake of our future generations.
The USA is becoming a nation of technopeasants, an “urban subsistence” economy. With the shift of multinationals to China and India, taking with them the high-wage stable 9-5 corporate jobs with good benefits that once bolstered the American Middle Class, the USA (and to a lesser extent, other Western nations and Japan) are becoming high-tech, 21st century versions of those subsistence economies that existed before the Industrial Revolution. Those good, stable corporate jobs are being replaced at a more and more rapid clip, with sole proprietorships, one-person internet businesses, leisure/work nanopreneurs, freelance microcrafts, and solo LLCs — all reliant, at best, on highly erratic income streams.
This is such BS……….China currently doesn’t function properly as a country. Shanghai is just a pigsty with a decent downtown center, that country has serious problems. China’s economic development is overrated. If the largest population on earth isn’t the greatest economic power, something is wrong. As to the innovation, regardless of how bad the education system is, China has given the world only four things in the last 5000 years, how much did the Greeks contribute? Everything important on earth.