Thursday, July 10, 2008

Will China's Economy Overtake That of The U.S. By 2035?

The headline asks the question that some economists have already answered. China's economy will overtake that of the U.S. by 2035. The report was produced by economist Albert Keidel of the Carnegie Endowment for International Peace. Keidel believes that China's growth will be sustained by domestic growth more than exports in the coming decades.

"China's economic performance clearly is no flash in the pan," Keidel writes.

"Its growth this decade has averaged more than 10 percent a year and is still going strong in the first half of 2008. Because its success in recent decades has not been export-led but driven by domestic demand, its rapid growth can continue well into the 21st century, unfettered by world market limitation."

Is this a undisputed fact? China faces great challenges in maintaining the pace of growth that Keidel notes. China faces all of the challenges that developed countries in Europe and North America face, plus a host of problems born of their population, and problems in sustaining a livable lifestyle for 1.2 billion people.

Keidel continues by reporting that he believes that China's economic power will eclipse the United States totally by 2050, by having a GPD of 82 trillion dollars versus 44 trillion for the United States. He further claims that China will dominate the world in every aspect that the United States enjoyed the past half century.

He writes.

"Leadership of international institutions will gravitate toward China. This movement could include the equivalents at that time of the United Nations, the World Bank, the International Monetary Fund, regional international development banks, and more specialized bodies. Various headquarters could shift to Beijing and Shanghai."

Keidel admits that China's communist system of government and social unrest is the biggest hurdle to achieving this goal. That statement represents the twin elephants in the room. How China integrates a bulging population into middle class, and then peacefully opens their government to a more representative society is the great question of the age.

The clarion call is being sounded by several Americans that in order to maintain our leadership, the United States needs to re-invirgorate and rediscover the things that made our nation the role model and desired destination for almost everyone who seeks a better life.

There was an important post today on the Steve DeAngelis, Enterra Solutions blog. It title hints a return to an important facet that for the past thirty years has been fading as an American icon, our manufacturing base. The post, Reviving U.S. Manufacturing addresses the critical need for America to get over the malise of self loathing and naval gazing, and get into the business of self development.

In a recent post entitled "Development-in-a-Box™ at Home in America," I focused on an op-ed piece by Thomas Friedman. In that piece, he chided U.S. politicians for not embracing policies that fostered the "next great global industry — renewable energy and clean power." Their lack of vision and action, he lamented, meant that America was not taking advantage of an opportunity clearly ready to be exploited. In another New York Times' op-ed piece, former Democratic senator and presidential candidate Gary Hart called on his party's candidate, Barack Obama, to use the campaign to outline a new chapter for American politics ["America’s Next Chapter," 25 June 2008]. Hart argues that new political chapters are, historically, written about every three decades and that the time is ripe for a new one.

DeAngelis turns to a question asked in a Business Week article.

Can the U.S. recapture its manufacturing base? Pete Engardio, writing in BusinessWeek, asks just such a question ["Can the U.S. Bring Jobs Back from China?" 30 June 2008 print edition]. His answer is "maybe." But he warns, "American industry may not be ready to seize the opportunity" even when it presents itself. He begins his article with the story of a New England battery developer who couldn't find a U.S. company to produce her batteries.

Steve worries that.

In the post I mentioned at the beginning of this blog, I indicated that I had observed the same thing about U.S. businesses and workers. They seem to have lost their competitive edge, especially when dealing with emerging economies. I argued that America needs to reinvigorate the culture of hard work and ambition that made it great in the first place.

DeAngelis ends writing about what Engardio found in his article that needs to be done to get America back on track as a manufacturing economy.

He believes that government agencies can also play a role by providing seed capital to promising startups and by building industrial parks with low-cost facilities and services that rival those found in China. Friedman called that "nation-building at home" and I referred to it as Development-in-a-Box™ at home. Whatever you call it, America needs to build world-class facilities to support emerging economic sectors as well as reinvigorate the pioneer spirit that made American workers the most productive in the world.

Another person who has been in the forefront of leading the way to a return of America's traditional role as the most innovative country in history is John Kao. a recent The New York Times profiles John Kao looks at his message and what makes Kao tick. His book Innovation Nation: How America Is Losing Its Innovation Edge, Why It Matters, and What We Can Do to Get It is a primer on what America can do to regain it's leadership.

. The above posts are offered to stimulate the dialog and encourage Americans to dream about a future worth creating for their children and their grandchildren. For the members of the Boomer generation, our time is waning, we can use that time to become visionary and guide the next generations to renew the American Dream and understand that for much of our history we used our economic power for good and influence around the globe, while building our nation and enriching our people.

Update: hat/tip to Fabius Maximus for linking Keidel's report.
China’s Economic Rise - Fact and Fiction“,

And comments from China based blog, All Roads Lead to China, questions several assumptions made by, Anthony Kiedel Report: China’s Economic Rise - Fact or Fiction.


Fabius Maximus said...

Usually I would email about this, but I do not see an address on your site. Two quick comments...
(1) China's growth is largely domestic, not export-led.
If this is what you were questioning ("Is this a undisputed fact?"), then the answer is yes.

As Brad Setser said (Council on Foreign Relations; major expert in global capital flows): "At their peak, net exports were contributing between 2 and 3% to an overall growth that was over 10%. Statistically, domestic investment and consumption were more important. No one has ever argued the contrary."
(2) US manufacturing has largely faded due to the over-valued US currency, and is surging right now. Real goods exports were up 9.4% in May year over year.
For a look at how this might work out, see "Geopolitical implications of the current economic downturn" (24 January 2008) – How will this recession end? With re-balancing of the global economy — and a decline of hthe US dollar so that the US goods and services are again competitive. No more trade deficit, and we can pay our debts.

historyguy99 said...

Thanks, Fab,

We agree on all counts in this story.