Next Big Future: Historic Comparison of China versus United States GDP
Will_Brown
· 1 year ago
Sorry Brian, have to disagree. No argument with the facts as you present them, but much like technology doesn't develop in a linear fashion, neither does any construct as complex as a country's economy develop in such a straight-line progression either. There are simply too many disparate influences effecting the often contradictory impulses that comprise a GDP evaluation (taxes, import/export excises, health or other natural disaster, irrational consumer behavior, external efforts to manipulate market performance ... the list is a long one), let alone a national economy's actual performance. All of which serves to make such straight-line prognostications as you offer here into well-researched nonesence.
That said, an evaluation does have to start somewhere and doing so from a factually verifiable point is a good beginning. It just isn't anything like a complete (or particularly useful) evaluation on its own. I will agree that the figures you have compiled do indicate the possibility for PRC to surpass USA in GDP, if all other contributing factors actually continue to propel the two country's respective domestic economies to that result. Certainly, the figures you supply indicate such a trend having occured over the past several years. How likely do you judge the continuation of the contributing influences to be in contionuing such growth? How much potential is there for external factors to alter either country's internal market growth as a result of external considerations? Which country's domestic market can better allow and sustain new technology entries to the market? How does either country's current condition differ from it's 2000 GDP - the starting point for the graphed growth projection - and how does such a change alter the growth trend?
How does the stock investors bromide go: Past performance does not predict future outcomes? Even with all the data and hand waving above, how is this circumstance any different? There may well be cause for concern regarding the GDP (and the economy generally) of either country or both, but the figures supplied (never mind the "projection") doesn't make such at all clear.
In 2004, it was estimated that China would be 58 to 60 percent urban 2020, and the urban population would hit 800 to 900 million. The urbanization rate was 37.7 percent in 2002. More recent figures suggest urbanization is at 42% in 2004, so urbanization is happening faster. A more recent university study indicates that China will be 50% urban in 2007. At a total population of 1.33 billion that means 665 million urban dwellers. 36-40 million people have been moving to the cities every year since 2002.
By 2015, at the rate of 35 million people per year moving to the cities, China would have 900 to 950 million in the cities and towns and 65-68% urbanization.
I think China is going to 80-85% urbanization like the developed countries. People in the cities make 3 times more than those in the rural areas. So 35% more urban would be 70% more GDP when those people are absorbed and productive in the cities.
So is a basic level of continued infrastructure improvement, modernization (GDP catchup) and urbanization possible. Infrastructure is where china is building out its highways and rail and shipping up to the density of level of the USA and increasing its per capita energy. Those infrastructure projects are already underway and look certain for 2020 and likely through to 2030.
China has 1.9 trillion in currency reserves and has the national financial means to fund continued development even if there was a significant financial problem or a natural disaster or something else unforeseen. They can self insure without going out for credit.
China is currently in the position to buy its way up by buying companies, equipment, factories and technology, high end services and training. The foreign direct investment levels seem likely to continue as well. Thus China can move to compete in businesses that provide higher GDP levels. Cars, IT, planes, ships, services etc... Plus the internal markets are developing.
The GDP growth projections out two, three years are usually fairly accurate. And projections for China are 8-10% each year with about 9% average for the three years. The projections out five years are for 8.5% avg.
China wants 9-11% growth. They can lower interest rates from about 6% to get more growth. They have trillions in reserves and continue to accumulate money from trading and other surpluses. China has a lot of tools and unused financial ammo to keep growth going.
I see China's position now as stronger than its position in 2000.
China doing well now so that it can use its trillions to get even stronger position and influence in Asia and around the world. They can buy their future growth and influence on the cheap now with the credit crisis. They can also buy and fund their biggest and best industries. Just like a large company can buy back shares to increase stock prices.
China getting a piece of Blackstone group is a vehicle for them to do big private deals. China is also hiring a lot of available top quality financial and technical talent. Stephen Chen (x-cray supercomputer guru). Getting or keeping top level brains and then funding them to build big businesses is something that China has been doing and looks positioned to do even better.
Will_Brown
· 1 year ago
Brian, I wasn't really questioning your basic contention, nor did I doubt your ability to support the position. I simply thought it worth noting that the supplied data didn't support your basic contention on its own.
I notice that your follow-up doesn't consider the effects of individual and local group (corp's, etc) efforts to advance their position's at the expense of the overall market condition (Enron, Fannie Mae and Freddie Mac accounting manipulations all being examples of this type of behavior from recent US history). Likewise, I note the absense of external actions like that mounted by George Soros against the British pound some years ago. While a specific response can only be built after such an effort comes to light, expectation of such occuring ought to be explicitly reflected in any economic projection, if only as a variable of uncertainty.
The value of this evaluation is in it's examination of potential within the PRC economy. The message I take from it though is that the USA economy is somehow at fault or failing as a result. Not certain that is your intent, but I continue to disagree with that conclusion on the basis of what is included here. I don't doubt the USA economy is growing slower than China's is at present (such would almost have to result, if only due to the relative disparity between the two examples at the beginning of the comparrison period), but see no measure of it's potential market growth included here for more complete comparisson.
If your contention is that the PRC is a rapidly growing market, relative to the USA then we have no disagreement. Your linear projection of that disparity into future condition is misleading, in my opinion. It isn't the data I question, but the linear nature of the growth projected therefrom.
nextbigfuture
· 1 year ago
Will
I greatly appreciate your feedback in helping to make my case a stronger and clearer one. I also am very interested in holes in my thesis and alternative scenarios in what will happen in reality.
Individuals and corporation would only effect the larger economic picture if it was part of debilitating systemic corruption or other systemic problems. Enron did not really hit the US GDP. What did hit the US GDP ? I think the Savings and Loan crisis did. The internet dot.bomb did as well for a short recession. Commodity availability and prices can effect growth. Famines. A massive earthquake hitting Shanghai could hamper things for a time.
Systemic corruption dragged the Philippines economy down, from its relative solid position in the early part of the 20th century.
China does have the state run corporations, but they are a shrinking share of the overall economy.
I do not think Soros gaming the pound had long term effects on overall GDP of the UK.
China and the US do have a hot money problem. The whole world [financial institutions, sovereign wealth funds - oil money] has been financially gaming the fact that China's yuan has been getting stronger than the US dollar. I saw a presentation on this by a Berkeley professor. However, the effect of this massive financial force were to become uncontrolled is that China's currency would be forced into a period of accelerated strengthening. Once the Chinese and US currency were not at an artificially maintained exchange rate (China keeping the currency weaker that it might otherwise be) then would not be an assured financial game for others to take advantage.
I think that China can withstand a stronger currency. A rapid shift to a stronger chinese currency would show up as china's exchange rated economy being closer to the US level. China exports could be reduced to a certain extent but I do not believe that it would be that damaging to China's economy or to this GDP projection.
China is more dependent on the foreign investment than on the exports. combined the investments and the exports are over half of the growth.
So if China's policies or economy shifted to make investment in China less attractive then that would impact GDP growth.
China's people have a high savings rate and the government is growing larger reserves and making a big investment fund, so in parallel with something causing the investment money spigot to close off would be something causing those sources of money from being the replacement to make up for less foreign investment. By 2015, I see Chinese domestic funding capability being mature enough to not be crippled with something effecting FDI.
=== The case is that China has fast growth, this fast growth or something close to it looks solid out to 2020 and probably beyond and this will mean that China will pass the US economy. It would also mean that China would pass the combined economy of the EU. The US economy compared to its current peers (EU and Japan) has not been doing badly growth wise. Based on the current situation China will pass the US economy. That means the chinese people will still be over four times poorer than the average American at that time.
However, I believe that the US could have a faster growing economy. There are inefficiencies in the system which are hindering growth. If America really cared about being economic number 1 and being the superpower then they should have been doing different things for the last few decades and they should be doing different things going forward. the fact that the US is number one shows how poorly the Europe has been doing as a competitor.
Bad technology choices and ineffective technology systems. The state of broadband in the USA. The FCC management of spectrum.
The tax system. (Fair tax or lower flat tax) would be systems that encourage more growth and higher GDP.
Stepping up to mass produced fission power.
US healthcare needs to be revamped based on cheap detection and prevention of disease. Biomarkers and testing. Healthcare could not only be cheaper but people could be made healthier and more productive.
All of these steps are ones that Europe, Japan or other countries could be following.
The US could have industrialized space and enabled far more economic contribution than just communication satellites.
Immigration does grow the economies over time. A country without immigration can be seen in Japan. Smart immigration is like recruiting for a company. You want a system where you can get as many of the best available people as possible where they can then be brought in and making more positive contribution. This is part of an overall system where new generations are also enabled to reach their potential as well. Education, entrepreneurship, financial system strength, technology development are all ingredients for that.
China has to think for the next ten years how do I get my people from $3000 per year to $15,000 per year for about 10% growth and currency appreciation. The US should be thinking, how do we get our people from $50,000 per year to $150,000-200,000 per year over the next ten years. By default the 2.5 to 3% growth is tracking to $70,000-80,000 per year. If we wanted 5-8% growth per year then how do we get there ? [instead of it is great when we have 3.5-4% growth and let us argue about things that will reduce it to 1.5 to 2% or some who call for no growth -some greens] Just because up to this point there has not been a large competing nation that is achieving that does not mean it can be done. Those growth rates have been achieved for places like Ireland. Japan did it for a while but then screwed up [Japan needs immigration and natural population growth and other steps to re-invigorate their economy and nation]. Other nations can see what could have been economically possible when over decades they fall badly behind countries that they were equal to before. India was ahead of China several decades ago but then China improved a lot and India did not until India started to improve decades later but still not as fast as China.
Many in the US think that this was about the best that the US could have done growth and technology wise. That is not the case. the developed country growth rate of 3-3.5% is not the best or optimal. It is possible to grow faster without inflation. And this higher growth can be done in a way that does not harm the environment or health of people.
It is like Sears and Macy's were the biggest and best retailers for a time, and nothing better was imagined until Walmart and Costco came along.
the vastly stronger economic growth goes to my articles on a mundane singularity and a manufacturing and construction revolution.
- The nearly 10% per year GDP growth since 2000 was primarily the result of the 1997 urban land reform during the Jiang Zemin - Zhu Rongji era, which began to let the urbanites monetize their land use right. When the reform initiative was first started, China had less than 500 million in urban population. In the 17th CPC session during Oct 9-12 this year, the government just kicked off a similar program to let the 730 million rural population monetize their land use right. Land has value, and now each peasant household could mortgage or sell two pieces of land if he so choses --- one plot he cultivates and the other he resides. For an average peasant household in the coastal area, that means about 800 square meters, and carries a current market value of about $15,000. So the total worth could be easily in the $tillions. With rural land reform, urbanization will speed up. The government believes rural income would be easily doubled by 2020, and greatly increase the share of domestic consumption's share in the GDP. If China's rapid growth during the last decade was earth shattering, so it seems would be its next.
- How much money China has? Everyone knows the $1.91 trillion in forex reserve, but there is another $1.5 trillion locked up in the bank vaults as a result of the 17% bank reserve ratio (each 1% numerically worth about $90 - $100 billion in liquidity). This $1.5 trillion liquidity could be released at a wave of the hand should China's economy need it. That is more than all the bailout money earmarket by all the countries in the world for the current financial crisis.
- In fact, China's growth rate is rather predictable --- since it fundamentally manages its M2 money supply at about 16 - 18% per year growth rate. In a bad year such as 2008, forex flow began to reverse, and export growth began to fall, M2 only recently dipped to slightly below 16%, and that's why the PBoC began to cut bank reserve ratio, and lending/deposit interest rates. With a large trade surplus and strong long term RMB appreciation expectation, the margin for error in managing this 16 - 18% M2 growth is so large so that it's pretty much automatic for China to assume 8 - 10% annual GDP growth for as long as the eyes can see.
- On the contrary, the average household networth in the US is all but wiped out as a result of the financial crisis, so it'd be very difficult for the US to maintain the kind of high growth and low inflation we saw over the past decade. Consumption would remain in the basement for a very long time, perhaps 15 to 20 years. Therefore, your projection probably is not overly optimistic.
- Numerically China's GDP ppp actually surpassed that of the US back in 2007, until the UN changed its GDＰ ｐｐｐ ｍｅａｓｕｒｅｍｅｎｔ ｍｅｔｈｏｄ．Ｔｈｅ ｐｒｅｖａｌｅｎｔ ｗａｇｅ ｏｆ ａｖｅｒａｇｅ ｕｎｓｋｉｌｌｅｄ ｌａｂｏｒ ｉｓ ｓｔｉｌｌ ｏｎｌｙ ａｂｏｕｔ ＄１００ ａ ｍｏｎｔｈ ｉｎ ｔｈｅ １ｓｔ ｗｏｒｌｄ ｃｉｔｙ ｏｆ Ｂｅｉｊｉｎｇ， ａｎｄ ａｖｅｒａｇｅ ｌｉｋｅ－ｓｉｚｅｄ ｆａｍｉｌｙ ｆｏｏｄ ｂｕｄｇｅｔ ｏｒ ｒｅｎｔ ｉｓ ｏｎｌｙ ａｂｏｕｔ １／５ ｏｆ ｔｈａｔ ｏｆ Ｎｅｗ Ｙｏｒｋ．Ｔｈｅｒｅｆｏｒｅ ｉｔ ｄｏｅｓｎ＇ｔ ｍａｔｔｅｒ ａ ｗｈｏｌｅ ｌｏｔ ｔｏ ｄｅｂａｔｅ ｗｈｅｎ ｗｏｕｌｄ Ｃｈｉｎａ＇ｓ ＧＤＰ ｆｉｎａｌｌｙ ｏｖｅｒｔａｋｅ ｔｈａｔ ｏｆ ＵＳ．
dylanjones
· 1 year ago
Not that I visit NextBigFuture to be subjected to a 'PRC is great' lecture, but couldn't help reading this post and offering some thoughts. The simplest is the old adage 'past performance does not guarantee future returns'. PRC has had a great run, but it is arguable that significant and potentially wrenching changes will have to be made in the economy and society to extend that run as long as is predicted in this blog. This is not just my view, in fact it is the view of the Communist Party leadership as announced at the Central Economic Work Conference in December 2004. There the Party decided that China's current growth method was not sustainable in the long term. Why? Well ... 1) there is clear evidence that investment-and export-led growth (and that is what China has experienced these last few years, consumption plays a minor role and has never been stimulated successfully despite endless campaigns) is leading to less-and-less efficient use of resources. In the words of Martin Wolf (2005), the chief economics commentator for the Financial Times, the surprising thing about the Chinese economy in recent years is not, as is so frequently asserted, how fast it is growing but rather, given the stupendous share of output devoted to investment, how slowly it is growing. There is over-investment and over-capacity in too many sectors (e.g. steel, autos, cement, coke, property, etc). 2) Partly because GDP growth is not really being created by household consumption growth, there are increasing wealth distribution problems. Income inequality is stark and getting worse all the time (rather worse than Russia for instance). Wealth is highly concentrated in a few hands. Moreover, there is a highly unbalanced regional pattern of growth, with a very few regions benefitting disproportionately and inland and rural areas remaining backward despite again endless campaigns to encourage balanced development. Reliance on export-led growth has distorted the economic landscape and led to a few 'winners' on the coast and many 'losers'. 3) China's growth mode has not been very employment generating. The rate of employment growth per additional unit of GDP growth has been slowing, despite massive investment levels unheard of anywhere else. Big industry simply does not create as many jobs as does light industry and the service sector. 4) China's growth mode is environmentally unsustainable. Burgeoning energy consumption and other detrimental effects on the environment are readily apparent. Investment-driven growth has required the output of machinery and equipment, and the inputs to produce them, to grow much more rapidly than the output of consumer goods. Rapid growth of output of investment goods, in turn, increases the demand for energy disproportionately. China is now the largest emitter of greenhouse gas. 5) Overinvestment and excees capacity threaten China's financial sector. A slowdown in global demand could force many companies to the wall, defaults will rise, and banks (already subject to massive bailouts from the 1990s slowdown) will face rising bad debt ratios. 6) Reliance on export-led growth creates trade frictions and invites protectionism. It also exposes China unduly to global economic shocks (such as the one currently unfolding). 7) Absence of genuine official accountability to those they rule invites graft, corruption and crony capitalism - all worsening problems in the PRC.
The punchline is though, that despite announcing in 2004 that the PRC would shift to a new, more sustainable growth mode, little has been achieved in this regard. Policy has seen tinkering rather than the dramatic shifts required. Vested interests, reliant on the past mode of generating growth are blocking those in the PRC leadership who want change. It is ironic that some of the changes may now be forced because of an entirely external shock. I doubt very much that these changes will be smooth or without immense challenges for the Communist Party. There will be immense pressure for the revaluation of the renminbi to be halted and for more pump-priming investment. Both policies would be against China's long-term economic interests, but they may prove irresistable for a Party leadership determined to hold onto power and to appease business cronies.
Tjgreen
· 1 year ago
Thinking of these countries as the same is wrong Brazil,Russia,India,China (BRIC) . I think it should be America,China,Europe (ACE).
Bretth
· 1 year ago
Would China's nominal GDP catch up with the PPP GDP by 2020 already? I think that might be somewhat too soon. Unless the PPP of China is underestimated (which it might be, given that the World Bank gave it an urban bias). I think 2018 might be 4-5 years too early. It all depends on when the nominal GDP catches up with the PPP though. I'd say that some of that catchup will come from higher inflation (which works like an appreciation) than in the US, and some appreciation of the yuan. But why is Taiwan's nominal GDP so much lower than the PPP GDP, its the only developed economy with a huge gap in price level compared to other developed economies.
Bretth
· 1 year ago
I have one question though. Is there enough incentives and plans in the pipeline to prevent a tripling of oil consumption by 2020? Because each Chinese can't consume 6 barrels a year (up from 2 barrels today, each American uses 25). The supply on the world market simply wont be there (especially not with the ASEAN countries, Middle East, the Subcontinent, Latin America and Eastern Europe also joining the western consumption party in the next decade). Oil consumption is still rising quickly in China, ICE gasoline cars is totally dominant even as the country embarks on a massive expansion of the car fleet (probably more than 300 million by 2020).
nextbigfuture
· 1 year ago
I do not think that China will be able to have 300 million cars. Not because people would not want them but because of problems building the parking and the roads. Taiwan has had greater than 25% per capita US GDP for a long time. Taipei had over 5 times as many scooters versus cars for a long time. People could afford more cars but they were not practical for getting around the city. China now has upwards of 85 million electric bikes and scooters, 20-30 millon being added each year.
The going forward ramp up should have significant percentage of high mileage cars, electrics and hybrids. Plus they will have biofuels and coal to liquids
Bretth
· 1 year ago
But S-Korea has a high car density. it had 250 cars per 1000 population 10 years ago, now it is much higher. And Korea doesn't have much space for parking and roads either, less space than China I believe. does TW have fewer than 250 cars per 1000 people?
nextbigfuture
· 1 year ago
These stats show S. Korea having 214 cars per 1000 people in 2003.
Other statistics I've heard would say otherwise, but I guess the definition of car is also important here. For example, trucks and vans are not included, probably not SUVs either. Why would S-Korea have a much smaller car density than Japan though? Given that China is a huge country, I would tend to believe that more people there would want the mobility to travel to different cities and regions of the country by vehicle, it might be different in a small island like Taiwan.
nextbigfuture
· 1 year ago
If China ends up at 200 cars per 1000 then that would be 300 million cars, when China has 1.5 billion people. [so retracting the China won't get to 300 million cars] Many European nations and Japan have about 500-550 cars per 1000. The per capita income is quite a bit higher than what China will have when they are equal to the USA on an overall economic basis. Those countries can still use less than half the oil that the US does on a per capita basis.
There will be a substantial global shift to the hybrid, electric and super efficient diesel cars and to lighter cars (aluminum and carbon fiber and nanotubes). So fuel efficiency can increase 4+ times.
Hopefully China will have more use of electric bikes and public transit. China is building out a lot of public transit. I will investigate and project China's transportation future and write something up
xinglongnite
· 1 year ago
Indeed, Chinese cities are rather compact, typical housing tracts are not single family homes but 6 - 24 story high rises, and supermarkets and shops are not miles away on main street, but just downstairs in the neighborhood.
Chinese wages are on a steep double digit climb since 2004 - 2005. After 2010 when the workforce population began to taper off, and population in their 30s began to massively outnumber that in their 20s, wage would continue this steep climb. No doubt whoever wants a car will have it in the not too distant future should he or she so chooses.
In a typical housing tract in Beijing, it seems every household already owns a car. But a few dozen cities are furiously building rail based public transit networks. In Beijing the population riding the subway to work is already above 10% and steadily growing. This year alone 4 new subway lines went on-line. Bus system development has been equally fast, and major arteries have been built out around high-speed bus lines. Nearly a dozen publicly subsidized bus companies assures every new housing tracts get enough bus stops as soon as its built. At $0.15 to $0.3 per ride, busing still maintains the dominant share of commuting traffic. Bicycles of all types are usually for short trip to the supermarket, the school, or to the bus or subway stops.
The larger issue is that China will continue to see increasing oil consumption, and the rest of the world will have to accomodate, by way of commodity inflation and/or recession or preferrably a drive toward alternative energy or conservation or otherwise. But China, like US, also possesses a large amount of energy reserve, and much is still untapped. As for alternative energy, he country is building more than 2 new nuclear power plants each year until 2020, produces more energy from sunlight than any other country in the world, and has a wind power program among the 1st world's.
Oil imports by China dipped after the country adjusted fuel prices just before the midyear, but it's seen to resume upward climb at a more moderate rate going forward.
MMO
· 1 year ago
I realize I'm very late to the party here, but I stumbled across this searching for something else. Brian, I'm impressed by your research ability, and you're clearly able to pull together numbers and form an assessment of them, a testament perhaps to your M.B.A. And I'm sure you're quite well-versed in technological matters. Here, however, you seem to suffer the same problems as many who try to synthesize information like this to create a forward-looking big picture - without really understanding the issue. There are a litanny of issues in here (including in the comments) to quibble with, but given that this is a dead topic I'll simply say that while the idea that China _could_ overtake the U.S. in aggregate GDP at some point, nothing in the information you're using lends any weight to a given likelihood of that actually happening.
As with the recent revaluation of Chinese PPP GDP (and with more revaluations of the multiplier to the down side sure to follow as the years pass), it is virtually impossible to predict the course of China's growth. I would really, really urge you to step back and examine, in particular, the prediction that China will grow from less than $4 trillion USD to nearly $19 trillion USD in a ten year timeframe, regardless of currency revaluation. There are just so many fundamental flaws in this that I don't even know where to begin, and I suspect from the highly Sinophile tone of your site and its ads that there is little real point of debating the issue. (You even seem to independently arrive at the same even more outlandish figures, such as China more than doubling U.S. GDP in just a few decades - claims that have never been made outside of China's own state-sponsor economists.) I know that this has become a popular past-time on the internet, particularly on Chinese sites, and the predictions about China's economic future grow wilder and wilder, but (for the most part) these are issues on which economists - not businessmen or financiers or bankers or investors, but economists, people such as myself who have made economics their field of study - are far more sober and realistic.
nextbigfuture
· 1 year ago
Two non China state sponsor economist [goldman sachs and Albert Keidel / Carnegie Endowment]
Based on the more commonly accepted market method, the turning point will come by 2035. By 2050, he estimated Chinese GDP at some 82 trillion dollars compared with 44 trillion for the United States.
================= The Growth from $4 trillion to $19 trillion is depending upon shifts in the chinese currency relative the the USD. If the US currency stays stronger then I could see it taking until 2025 for China to pass the US.
The US economy could get back to even higher growth after this recession, especially if some major technology developments happen (ones which benefit the US more than China.)
So your projection is that the chinese cannot get to half the per capita GDP (which would mean China double the US in overall GDP) of the United States even by say 2040 or 2050 ?
=== By 2020, I think China is at least 70% urbanized and has built outs its rail, airports, hospitals and a lot of nuclear power and cleaned up its energy infrastructure and environment. So what do you project the GDP ratio of China and the USA to be then ?
On a per capita basis, China cannot get to the relative position of a little better than where Mexico is relative to the USA or Poland by 2020? Or where Taiwan is by 2030 ?
By my predictions Technology and Economies could start drastically shifting by 2020 so things become less predictable. However, China is pursuing molecular nanotechnology and other major future technologies, so they should remain competitive.
Will my prediction still be tracking around 2012-2013 ? Does China get to 50% and then 60% of the US GDP on a nominal dollar basis. how close to 50% at the end of the first term of President Obama. I can see 2009 being one of slower currency appreciation as China tries to protect some export related areas. Holding too long would seem likely to re-ignite hot money flows.
btw: ads are automatic based on keywords. Other of my 2600+ articles on technology have no China related ads.
I am glad you commented and would be interested to see what you predict for the next four years and ten years.
All Comments
That said, an evaluation does have to start somewhere and doing so from a factually verifiable point is a good beginning. It just isn't anything like a complete (or particularly useful) evaluation on its own. I will agree that the figures you have compiled do indicate the possibility for PRC to surpass USA in GDP, if all other contributing factors actually continue to propel the two country's respective domestic economies to that result. Certainly, the figures you supply indicate such a trend having occured over the past several years. How likely do you judge the continuation of the contributing influences to be in contionuing such growth? How much potential is there for external factors to alter either country's internal market growth as a result of external considerations? Which country's domestic market can better allow and sustain new technology entries to the market? How does either country's current condition differ from it's 2000 GDP - the starting point for the graphed growth projection - and how does such a change alter the growth trend?
How does the stock investors bromide go: Past performance does not predict future outcomes? Even with all the data and hand waving above, how is this circumstance any different? There may well be cause for concern regarding the GDP (and the economy generally) of either country or both, but the figures supplied (never mind the "projection") doesn't make such at all clear.
http://nextbigfuture.com/2007/05/rate-of-urbani...
In 2004, it was estimated that China would be 58 to 60 percent urban 2020, and the urban population would hit 800 to 900 million. The urbanization rate was 37.7 percent in 2002. More recent figures suggest urbanization is at 42% in 2004, so urbanization is happening faster. A more recent university study indicates that China will be 50% urban in 2007. At a total population of 1.33 billion that means 665 million urban dwellers. 36-40 million people have been moving to the cities every year since 2002.
By 2015, at the rate of 35 million people per year moving to the cities, China would have 900 to 950 million in the cities and towns and 65-68% urbanization.
I think China is going to 80-85% urbanization like the developed countries. People in the cities make 3 times more than those in the rural areas. So 35% more urban would be 70% more GDP when those people are absorbed and productive in the cities.
So is a basic level of continued infrastructure improvement, modernization (GDP catchup) and urbanization possible. Infrastructure is where china is building out its highways and rail and shipping up to the density of level of the USA and increasing its per capita energy. Those infrastructure projects are already underway and look certain for 2020 and likely through to 2030.
China has 1.9 trillion in currency reserves and has the national financial means to fund continued development even if there was a significant financial problem or a natural disaster or something else unforeseen. They can self insure without going out for credit.
China is currently in the position to buy its way up by buying companies, equipment, factories and technology, high end services and training. The foreign direct investment levels seem likely to continue as well. Thus China can move to compete in businesses that provide higher GDP levels. Cars, IT, planes, ships, services etc... Plus the internal markets are developing.
The GDP growth projections out two, three years are usually fairly accurate. And projections for China are 8-10% each year with about 9% average for the three years. The projections out five years are for 8.5% avg.
China wants 9-11% growth. They can lower interest rates from about 6% to get more growth. They have trillions in reserves and continue to accumulate money from trading and other surpluses. China has a lot of tools and unused financial ammo to keep growth going.
I see China's position now as stronger than its position in 2000.
China doing well now so that it can use its trillions to get even stronger position and influence in Asia and around the world. They can buy their future growth and influence on the cheap now with the credit crisis. They can also buy and fund their biggest and best industries. Just like a large company can buy back shares to increase stock prices.
China getting a piece of Blackstone group is a vehicle for them to do big private deals. China is also hiring a lot of available top quality financial and technical talent. Stephen Chen (x-cray supercomputer guru). Getting or keeping top level brains and then funding them to build big businesses is something that China has been doing and looks positioned to do even better.
your ability to support the position. I simply thought it worth noting that
the supplied data didn't support your basic contention on its own.
I notice that your follow-up doesn't consider the effects of individual and
local group (corp's, etc) efforts to advance their position's at the expense
of the overall market condition (Enron, Fannie Mae and Freddie Mac
accounting manipulations all being examples of this type of behavior from
recent US history). Likewise, I note the absense of external actions like
that mounted by George Soros against the British pound some years ago.
While a specific response can only be built after such an effort comes to
light, expectation of such occuring ought to be explicitly reflected in any
economic projection, if only as a variable of uncertainty.
The value of this evaluation is in it's examination of potential within the
PRC economy. The message I take from it though is that the USA economy is
somehow at fault or failing as a result. Not certain that is your intent,
but I continue to disagree with that conclusion on the basis of what is
included here. I don't doubt the USA economy is growing slower than China's
is at present (such would almost have to result, if only due to the relative
disparity between the two examples at the beginning of the comparrison
period), but see no measure of it's potential market growth included here
for more complete comparisson.
If your contention is that the PRC is a rapidly growing market, relative to
the USA then we have no disagreement. Your linear projection of that
disparity into future condition is misleading, in my opinion. It isn't the
data I question, but the linear nature of the growth projected therefrom.
I greatly appreciate your feedback in helping to make my case a stronger and clearer one.
I also am very interested in holes in my thesis and alternative scenarios in what will happen in reality.
Individuals and corporation would only effect the larger economic picture if it was part of debilitating systemic corruption or other systemic problems.
Enron did not really hit the US GDP. What did hit the US GDP ? I think the Savings and Loan crisis did. The internet dot.bomb did as well for a short
recession. Commodity availability and prices can effect growth. Famines. A massive earthquake hitting Shanghai could hamper things for a time.
Systemic corruption dragged the Philippines economy down, from its relative solid position in the early part of the 20th century.
China does have the state run corporations, but they are a shrinking share of the overall economy.
I do not think Soros gaming the pound had long term effects on overall GDP of the UK.
China and the US do have a hot money problem. The whole world [financial institutions, sovereign wealth funds - oil money]
has been financially gaming the fact that China's yuan has been getting stronger than the US dollar. I saw a presentation on this by a Berkeley professor. However, the effect of this massive financial force were to become uncontrolled is that China's currency would be forced into a period of accelerated strengthening. Once the Chinese and US currency were not at an artificially maintained exchange rate (China keeping the currency weaker that it might otherwise be) then would not be an assured financial game for others to take advantage.
I think that China can withstand a stronger currency. A rapid shift to a stronger chinese currency would show up as china's exchange rated economy being closer to the US level. China exports could be reduced to a certain extent but I do not believe that it would be that damaging to China's economy or to this GDP projection.
China's economy is not export dependent as detailed in the Economist.
http://www.economist.com/finance/displaystory.c...
Value add exports are less than 10% of GDP.
China is more dependent on the foreign investment than on the exports. combined the investments and the exports are over half of the growth.
So if China's policies or economy shifted to make investment in China less attractive then that would impact GDP growth.
China's people have a high savings rate and the government is growing larger reserves and making a big investment fund, so in parallel with something causing the investment money spigot to close off would be something causing those sources of money from being the replacement to make up for less foreign investment. By 2015, I see Chinese domestic funding capability being mature enough to not be crippled with something effecting FDI.
===
The case is that China has fast growth, this fast growth or something close to it looks solid out to 2020 and probably beyond and this will mean that China will pass the US economy. It would also mean that China would pass the combined economy of the EU. The US economy compared to its current peers (EU and Japan) has not been doing badly growth wise. Based on the current situation China will pass the US economy. That means the chinese people will still be over four times poorer than the average American at that time.
However, I believe that the US could have a faster growing economy. There are inefficiencies in the system which are hindering growth. If America really cared about being economic number 1 and being the superpower then they should have been doing different things for the last few decades and they should be doing different things going forward. the fact that the US is number one shows how poorly the Europe has been doing as a competitor.
Bad technology choices and ineffective technology systems. The state of broadband in the USA. The FCC management of spectrum.
The tax system. (Fair tax or lower flat tax) would be systems that encourage more growth and higher GDP.
Stepping up to mass produced fission power.
US healthcare needs to be revamped based on cheap detection and prevention of disease. Biomarkers and testing.
Healthcare could not only be cheaper but people could be made healthier and more productive.
All of these steps are ones that Europe, Japan or other countries could be following.
The US could have industrialized space and enabled far more economic contribution than just communication satellites.
Immigration does grow the economies over time. A country without immigration can be seen in Japan. Smart immigration is like recruiting for a company. You want a system where you can get as many of the best available people as possible where they can then be brought in and making more positive contribution. This is part of an overall system where new generations are also enabled to reach their potential as well. Education, entrepreneurship, financial system strength, technology development are all ingredients for that.
China has to think for the next ten years how do I get my people from $3000 per year to $15,000 per year for about 10% growth and currency appreciation.
The US should be thinking, how do we get our people from $50,000 per year to $150,000-200,000 per year over the next ten years. By default the 2.5 to 3% growth is tracking to $70,000-80,000 per year. If we wanted 5-8% growth per year then how do we get there ? [instead of it is great when we have 3.5-4% growth and let us argue about things that will reduce it to 1.5 to 2% or some who call for no growth -some greens] Just because up to this point there has not been a large competing nation that is achieving that does not mean it can be done. Those growth rates have been achieved for places like Ireland. Japan did it for a while but then screwed up [Japan needs immigration and natural population growth and other steps to re-invigorate their economy and nation]. Other nations can see what could have been economically possible when over decades they fall badly behind countries that they were equal to before. India was ahead of China several decades ago but then China improved a lot and India did not until India started to improve decades later but still not as fast as China.
Many in the US think that this was about the best that the US could have done growth and technology wise. That is not the case. the developed country growth rate of 3-3.5% is not the best or optimal. It is possible to grow faster without inflation. And this higher growth can be done in a way that does not harm the environment or health of people.
It is like Sears and Macy's were the biggest and best retailers for a time, and nothing better was imagined until Walmart and Costco came along.
the vastly stronger economic growth goes to my articles on a mundane singularity and a manufacturing and construction revolution.
http://nextbigfuture.com/2008/06/modelling-and-...
- The nearly 10% per year GDP growth since 2000 was primarily the result of the 1997 urban land reform during the Jiang Zemin - Zhu Rongji era, which began to let the urbanites monetize their land use right. When the reform initiative was first started, China had less than 500 million in urban population. In the 17th CPC session during Oct 9-12 this year, the government just kicked off a similar program to let the 730 million rural population monetize their land use right. Land has value, and now each peasant household could mortgage or sell two pieces of land if he so choses --- one plot he cultivates and the other he resides. For an average peasant household in the coastal area, that means about 800 square meters, and carries a current market value of about $15,000. So the total worth could be easily in the $tillions. With rural land reform, urbanization will speed up. The government believes rural income would be easily doubled by 2020, and greatly increase the share of domestic consumption's share in the GDP. If China's rapid growth during the last decade was earth shattering, so it seems would be its next.
- How much money China has? Everyone knows the $1.91 trillion in forex reserve, but there is another $1.5 trillion locked up in the bank vaults as a result of the 17% bank reserve ratio (each 1% numerically worth about $90 - $100 billion in liquidity). This $1.5 trillion liquidity could be released at a wave of the hand should China's economy need it. That is more than all the bailout money earmarket by all the countries in the world for the current financial crisis.
- In fact, China's growth rate is rather predictable --- since it fundamentally manages its M2 money supply at about 16 - 18% per year growth rate. In a bad year such as 2008, forex flow began to reverse, and export growth began to fall, M2 only recently dipped to slightly below 16%, and that's why the PBoC began to cut bank reserve ratio, and lending/deposit interest rates. With a large trade surplus and strong long term RMB appreciation expectation, the margin for error in managing this 16 - 18% M2 growth is so large so that it's pretty much automatic for China to assume 8 - 10% annual GDP growth for as long as the eyes can see.
- On the contrary, the average household networth in the US is all but wiped out as a result of the financial crisis, so it'd be very difficult for the US to maintain the kind of high growth and low inflation we saw over the past decade. Consumption would remain in the basement for a very long time, perhaps 15 to 20 years. Therefore, your projection probably is not overly optimistic.
- Numerically China's GDP ppp actually surpassed that of the US back in 2007, until the UN changed its GDＰ ｐｐｐ ｍｅａｓｕｒｅｍｅｎｔ ｍｅｔｈｏｄ．Ｔｈｅ ｐｒｅｖａｌｅｎｔ ｗａｇｅ ｏｆ ａｖｅｒａｇｅ ｕｎｓｋｉｌｌｅｄ ｌａｂｏｒ ｉｓ ｓｔｉｌｌ ｏｎｌｙ ａｂｏｕｔ ＄１００ ａ ｍｏｎｔｈ ｉｎ ｔｈｅ １ｓｔ ｗｏｒｌｄ ｃｉｔｙ ｏｆ Ｂｅｉｊｉｎｇ， ａｎｄ ａｖｅｒａｇｅ ｌｉｋｅ－ｓｉｚｅｄ ｆａｍｉｌｙ ｆｏｏｄ ｂｕｄｇｅｔ ｏｒ ｒｅｎｔ ｉｓ ｏｎｌｙ ａｂｏｕｔ １／５ ｏｆ ｔｈａｔ ｏｆ Ｎｅｗ Ｙｏｒｋ．Ｔｈｅｒｅｆｏｒｅ ｉｔ ｄｏｅｓｎ＇ｔ ｍａｔｔｅｒ ａ ｗｈｏｌｅ ｌｏｔ ｔｏ ｄｅｂａｔｅ ｗｈｅｎ ｗｏｕｌｄ Ｃｈｉｎａ＇ｓ ＧＤＰ ｆｉｎａｌｌｙ ｏｖｅｒｔａｋｅ ｔｈａｔ ｏｆ ＵＳ．
The simplest is the old adage 'past performance does not guarantee future returns'. PRC has had a great run, but it is arguable that significant and potentially wrenching changes will have to be made in the economy and society to extend that run as long as is predicted in this blog.
This is not just my view, in fact it is the view of the Communist Party leadership as announced at the Central Economic Work Conference in December 2004. There the Party decided that China's current growth method was not sustainable in the long term. Why? Well ...
1) there is clear evidence that investment-and export-led growth (and that is what China has experienced these last few years, consumption plays a minor role and has never been stimulated successfully despite endless campaigns) is leading to less-and-less efficient use of resources. In the words of Martin Wolf (2005), the chief economics commentator for the Financial Times, the surprising thing about the Chinese economy in recent years is not, as is so frequently asserted, how fast it is growing but rather, given the stupendous share of output devoted to investment, how slowly it is growing. There is over-investment and over-capacity in too many sectors (e.g. steel, autos, cement, coke, property, etc).
2) Partly because GDP growth is not really being created by household consumption growth, there are increasing wealth distribution problems. Income inequality is stark and getting worse all the time (rather worse than Russia for instance). Wealth is highly concentrated in a few hands. Moreover, there is a highly unbalanced regional pattern of growth, with a very few regions benefitting disproportionately and inland and rural areas remaining backward despite again endless campaigns to encourage balanced development. Reliance on export-led growth has distorted the economic landscape and led to a few 'winners' on the coast and many 'losers'.
3) China's growth mode has not been very employment generating. The rate of employment growth per additional unit of GDP growth has been slowing, despite massive investment levels unheard of anywhere else. Big industry simply does not create as many jobs as does light industry and the service sector.
4) China's growth mode is environmentally unsustainable. Burgeoning energy consumption and other detrimental effects on the environment are readily apparent. Investment-driven growth has required
the output of machinery and equipment, and the inputs to produce them, to grow much more rapidly than the output of consumer goods. Rapid growth of output of investment goods, in turn, increases the demand for energy disproportionately. China is now the largest emitter of greenhouse gas.
5) Overinvestment and excees capacity threaten China's financial sector. A slowdown in global demand could force many companies to the wall, defaults will rise, and banks (already subject to massive bailouts from the 1990s slowdown) will face rising bad debt ratios.
6) Reliance on export-led growth creates trade frictions and invites protectionism. It also exposes China unduly to global economic shocks (such as the one currently unfolding).
7) Absence of genuine official accountability to those they rule invites graft, corruption and crony capitalism - all worsening problems in the PRC.
The punchline is though, that despite announcing in 2004 that the PRC would shift to a new, more sustainable growth mode, little has been achieved in this regard. Policy has seen tinkering rather than the dramatic shifts required. Vested interests, reliant on the past mode of generating growth are blocking those in the PRC leadership who want change. It is ironic that some of the changes may now be forced because of an entirely external shock. I doubt very much that these changes will be smooth or without immense challenges for the Communist Party. There will be immense pressure for the revaluation of the renminbi to be halted and for more pump-priming investment. Both policies would be against China's long-term economic interests, but they may prove irresistable for a Party leadership determined to hold onto power and to appease business cronies.
http://nextbigfuture.com/2008/07/status-of-elec...
Cars 7 million per year being added
http://www.industryweek.com/ReadArticle.aspx?Ar...
China already has over 160 million cars
http://www.greencarcongress.com/2008/01/china-h...
The going forward ramp up should have significant percentage of high mileage cars, electrics and hybrids. Plus they will have biofuels and coal to liquids
http://earthtrends.wri.org/searchable_db/result...
212 cars per 1000 in 2000 in Taiwan
http://www.tiscali.co.uk/reference/encyclopaedi...
Many European nations and Japan have about 500-550 cars per 1000. The per capita income is quite a bit higher than what China will have when they are equal to the USA on an overall economic basis. Those countries can still use less than half the oil that the US does on a per capita basis.
There will be a substantial global shift to the hybrid, electric and super efficient diesel cars and to lighter cars (aluminum and carbon fiber and nanotubes). So fuel efficiency can increase 4+ times.
Hopefully China will have more use of electric bikes and public transit. China is building out a lot of public transit. I will investigate and project China's transportation future and write something up
Chinese wages are on a steep double digit climb since 2004 - 2005. After 2010 when the workforce population began to taper off, and population in their 30s began to massively outnumber that in their 20s, wage would continue this steep climb. No doubt whoever wants a car will have it in the not too distant future should he or she so chooses.
In a typical housing tract in Beijing, it seems every household already owns a car. But a few dozen cities are furiously building rail based public transit networks. In Beijing the population riding the subway to work is already above 10% and steadily growing. This year alone 4 new subway lines went on-line. Bus system development has been equally fast, and major arteries have been built out around high-speed bus lines. Nearly a dozen publicly subsidized bus companies assures every new housing tracts get enough bus stops as soon as its built. At $0.15 to $0.3 per ride, busing still maintains the dominant share of commuting traffic. Bicycles of all types are usually for short trip to the supermarket, the school, or to the bus or subway stops.
The larger issue is that China will continue to see increasing oil consumption, and the rest of the world will have to accomodate, by way of commodity inflation and/or recession or preferrably a drive toward alternative energy or conservation or otherwise. But China, like US, also possesses a large amount of energy reserve, and much is still untapped. As for alternative energy, he country is building more than 2 new nuclear power plants each year until 2020, produces more energy from sunlight than any other country in the world, and has a wind power program among the 1st world's.
Oil imports by China dipped after the country adjusted fuel prices just before the midyear, but it's seen to resume upward climb at a more moderate rate going forward.
As with the recent revaluation of Chinese PPP GDP (and with more revaluations of the multiplier to the down side sure to follow as the years pass), it is virtually impossible to predict the course of China's growth. I would really, really urge you to step back and examine, in particular, the prediction that China will grow from less than $4 trillion USD to nearly $19 trillion USD in a ten year timeframe, regardless of currency revaluation. There are just so many fundamental flaws in this that I don't even know where to begin, and I suspect from the highly Sinophile tone of your site and its ads that there is little real point of debating the issue. (You even seem to independently arrive at the same even more outlandish figures, such as China more than doubling U.S. GDP in just a few decades - claims that have never been made outside of China's own state-sponsor economists.) I know that this has become a popular past-time on the internet, particularly on Chinese sites, and the predictions about China's economic future grow wilder and wilder, but (for the most part) these are issues on which economists - not businessmen or financiers or bankers or investors, but economists, people such as myself who have made economics their field of study - are far more sober and realistic.
Goldman Sachs prediction from 2006/2007 on page 154 Goldman projects china to be at about 70 trillion US$2006 versus the US at about $38 trillion. So close to double.
Albert Keidel who has worked as a World Bank economist and US Treasury official calculations suggest that using the PPP method, China will catch up with the United States as an economic power by 2020, with an equivalent GDP of 18 trillion dollars.
Based on the more commonly accepted market method, the turning point will come by 2035. By 2050, he estimated Chinese GDP at some 82 trillion dollars compared with 44 trillion for the United States.
=================
The Growth from $4 trillion to $19 trillion is depending upon shifts in the chinese currency relative the the USD.
If the US currency stays stronger then I could see it taking until 2025 for China to pass the US.
The US economy could get back to even higher growth after this recession, especially if some major technology developments happen (ones which benefit the US more than China.)
So your projection is that the chinese cannot get to half the per capita GDP (which would mean China double the US in overall GDP) of the United States even by say 2040 or 2050 ?
===
By 2020, I think China is at least 70% urbanized and has built outs its rail, airports, hospitals and a lot of nuclear power and cleaned up its energy infrastructure and environment. So what do you project the GDP ratio of China and the USA to be then ?
http://en.wikipedia.org/wiki/List_of_countries_...
On a per capita basis, China cannot get to the relative position of a little better than where Mexico is relative to the USA or Poland by 2020? Or where Taiwan is by 2030 ?
By my predictions Technology and Economies could start drastically shifting by 2020 so things become less predictable. However, China is pursuing molecular nanotechnology and other major future technologies, so they should remain competitive.
Will my prediction still be tracking around 2012-2013 ? Does China get to 50% and then 60% of the US GDP on a nominal dollar basis. how close to 50% at the end of the first term of President Obama. I can see 2009 being one of slower currency appreciation as China tries to protect some export related areas. Holding too long would seem likely to re-ignite hot money flows.
btw: ads are automatic based on keywords. Other of my 2600+ articles on technology have no China related ads.
I am glad you commented and would be interested to see what you predict for the next four years and ten years.