# When will China overtake the U.S, economically?

by Willowz
Tags: china, economically, overtake
 P: 18 I question whether China has actually even surpassed Japan in GDP. As I've said before, I think China is a ticking time bomb that is in the midst of a massive bubble right now. Quite a few others believe this too, two prominent ones being Jim Chanos (who forsaw Enron's collapse) and economist Nouriel Roubini (LINK). The concern over China acquiring an overall larger GDP than the U.S. is that they can fund a very large military for what they want to do (control that region of the world). That said, I do not think they will surpass the U.S.'s GDP. All of these nations, during their growth phases, can gain an aura of invincibility. It happened to the United States even during the 2000s, when economist Ben Bernanke gave a speech talking about how we had entered a "new era" in which major recessions were a thing of the past and so forth, Dubai thought they were invincible, Japan thought they were invincible during the 1980s, Ireland thought they were invincible, etc...people thought the Soviet Union was leaving us in the dust even. I also do not buy that the Chinese government takes into account the long-term as opposed to the short-term as our politicians do. Enacting such a big stimulus as they did, the fact that the local Chinese governments have economic growth targets to meet, along with corruption in the Chinese government and state-run Chinese enterprises, etc...none of that indicates taking into account the long-term. Recently, China's government has had to assume the liability for about $308-$463 billion worth of bad loans from the local and regional Chinese governments (LINK) I think China's government is scared to death of a major uprising in the country. That is why it pushed through that massive infrastructure stimulus and why they have been censoring heavily in the country regarding the uprisings in the Middle East. China has no social safety nets of any kind. They have ethnic tensions in the country as well. If the economy stalls big time, then things could really explode beyond the ability of the Communist Party to control them. An interesting "bubble indicator" as well is those who say it is not a bubble. Well, they "could" be right, but I mean that is whwat has been said about almost every major bubble in history. You look at Japan in the 1980s, the Soviet Union, the Dot Com bubble, the real-estate bubble of the 2000s, etc...you could find very smart people (economists, investors, traders, etc...) who could give a good, detailed argument on why "This time, it's different!" We see some doing the same with China right now. Another interesting thing regards skyscrapers and art. Alongside Japan's real-estate bubble during the 1980s was a massive art bubble. And, in addition to an apparent massive real-estate bubble, China also is undergoing a big art bubble as well: LINK Regarding skyscrapers, the construction of very tall skyscrapers has also often served historically as a great bubble indicator. Right now, five of the ten tallest buildings are under construction in China: LINK LINK Here are some interesting reads on China: China's Red Flags China's Not a Bubble, It's the Hindenburg Satellite Pictures of China's Ghost Cities 64 Million Vacant Properties in China Shanghai Real Estate Bubble Why China's Local Government Debt Is So Scary Fitch Warns Over China Local Government Debt Chinese Local Debt Understated By $540 Billion China's Hidden Debt Undermines Its Sermons China has some major demographic problems regarding an aging population and because of killing so many of their female babies, a big problem of a severe shortage of available women for the men, major problems with pollution (they have no pollution controls on their industry), major problems with lack of quality control (they build garbage infrastructure apparently, LITERALLY---see the Shanghai Garbage Bridge), lack of food safety and worker safety standards and regulations, etc... Also a video: http://www.youtube.com/watch?v=rPILh...layer_embedded I just find it hard to believe with all this going on that they are going to keep chugging along, increasing in GDP output, and blow by the United States. The Chinese government cannot circumvent the laws of economics, even though they have tricked quite a few into thinking they can it seems. Mentor P: 2,775  Quote by WhoWee Can anyone name a product that was conceived of - developed from the ground up (100% of the original R&D), including prototypes, testing, and with a comprehensive marketing strategy that now leads the world in it's category? Please don't argue fortune cookies or other nonsense - think modern consumer product. Oh you just took all my fun away, WhoWee ! P: 1,070  Quote by lisab Oh you just took all my fun away, WhoWee ! i think most cheap fireworks are still made in china. silk. P: 1,121  Quote by lisab Oh you just took all my fun away, WhoWee ! Sorry lisab. I asked the question because the Chinese don't compete well in the global economy with their own proprietary products - they compete on (manufacturing) price rather than (product) benefits. I realized this over 15 years ago when Chinese factories used to send catalogs with thousand of pages of their domestic goods over with salesmen trying to break into the US retail market. The products might have been functional in the mid 1990's (when I looked through the books) but would have been competitive in the late 1960's or early 1970's US economy. The prices were unbelievable (in container quantities) - but the only realistic distribution method would have been flea markets and garage sales - certainly not retail stores. P: 186  Quote by MarcoD It's a bit odd, but at the moment I consider China the best capitalists in the world. They strongly set on a route of state-led mercantilism against open free-market economies. It's the darned Dutch East India Company again, with a Chinese flag on it. I don't, with my limited information and little economic knowledge, see them making a lot of mistakes. (Except for holding on to too much US debt. They could have traded that in for resources directly. But that also would have weakened international trade.) It's an interesting soccer match; I am not sure who'll win this game. I know this over simplifies things - but I feel that China is a good capitalist on the international scene, but a poor capitalist internally. P: 1,121  Quote by mege I know this over simplifies things - but I feel that China is a good capitalist on the international scene, but a poor capitalist internally. To further over-simplify - China has become the favorite sweatshop of the world. However, consumers don't necessarily want the "made in China" brand - only the lower prices.  P: 36 P: 98  Quote by CAC1001 I just find it hard to believe with all this going on that they are going to keep chugging along, increasing in GDP output, and blow by the United States. The Chinese government cannot circumvent the laws of economics, even though they have tricked quite a few into thinking they can it seems. I read some of the links, but I don't find any evidence that they are not just right on track. With 1.2-1.3 billion people and a sluggish state-led economy, you just don't care about some incidental ghost cities. Wait a few years, and they'll just be filled and thriving. Internal debt also has no meaning in a socialist state, and their state owned banks hold more than three trillion dollars to solve that problem. As far as the other comments on where China is in the world at the moment. Well, as far as I know, they're everywhere - first mostly in Asia and then all third world nations. It comes with a mercantile strategy, the western world is just the last picking on the dinner plate. If the East India Company is a predictor of the problems of a mercantile strategy, their biggest problems will be poor worker's conditions and rampant corruption. P: 18  Quote by MarcoD I read some of the links, but I don't find any evidence that they are not just right on track. With 1.2-1.3 billion people and a sluggish state-led economy, you just don't care about some incidental ghost cities. Wait a few years, and they'll just be filled and thriving. One of the major problems with those ghost cities is that most average Chinese cannot afford them (for example the homes in them). One of the article for example points out how at the height of the Japanese real-estate bubble, inter-generational mortgages were being offered. These are also being offered in China today.  Internal debt also has no meaning in a socialist state, Debt counts, even in a country like China. Their banks have taken on a LOT of debt in order to finance the various real-estate construction and infrastructure projects.  and their state owned banks hold more than three trillion dollars to solve that problem. Yes, but what are their liabilities? They may well have in excess of that amount in liabilities, or close to it (no one knows for sure right now).  If the East India Company is a predictor of the problems of a mercantile strategy, their biggest problems will be poor worker's conditions and rampant corruption. They definitely have those. P: 98  Quote by CAC1001 One of the major problems with those ghost cities is that most average Chinese cannot afford them (for example the homes in them). One of the article for example points out how at the height of the Japanese real-estate bubble, inter-generational mortgages were being offered. These are also being offered in China today. The problem is that we are not seeing what real-estate developments actually worked. These ghost cities are probably the excesses of state-led development in places where they backed the wrong horse (too expensive housing) with a combination of internal corruption (everyone is grabbing from the state for personal reasons, so the house prices, even for the simple condos, are just too high anyway.) [Maybe it is even just stealing money from foreign investors.] It will probably mean that 'the party,' will get angry at some officials, write of these condos, and push forward to payable homes in the next five year party plan. Thing is, every system has its excesses. The Chinese might also report about the excess of produced waste in the US as a result from a deregulated capitalist market. It's incidental evidence.  Debt counts, even in a country like China. Their banks have taken on a LOT of debt in order to finance the various real-estate construction and infrastructure projects. Yes, but what are their liabilities? They may well have in excess of that amount in liabilities, or close to it (no one knows for sure right now). I agree with that, but there's also the point that in a state-led economy you can just transfer money (balance the books) internally somewhat at will. It isn't that simple, but to use what happened in pure free-market societies as a predictor for a socialist economy is probably wrong, it just doesn't transfer. So, in a socialist society, national liabilities are less relevant than the international ones, and the international liabilities are just not there.  P: 1 The biggest problem with China today is hubris. In 25 years of observation, I have seen China change, but also the Chinese with them. Not only the BMW 750iL drivers in China, but practically the whole nation is acting as if they have already passed the west. I really have no reply for taxi drivers making 300$ per month telling me proudly that Chinese now are "stronger" than the country I come from. Another problem is the perception that visitors have of China. Many cities, especially in the East regions, are booming and start to look posh, but they represent only a fraction of China and even in a place like Shanghai it is not difficult to find poverty and filth. GDP goes up, but the quality of that GDP is doubtful. Majority of the housing would not pass any serious test in the west and one will be lucky if his apartment lasts for 20 years, while paying for it with an average income would take 50 years. At the moment this is concealed, many owners got compensated extraordinarily for the crappy apartments they were living in and had either a replacement or could pay off a big part at least of the mortgage of the even more overpriced new developments built on the site. But you can only play this trick one time and anyone without the luck of owning an old apartment simply cannot afford a new one unless off course they are one of the lucky few in business or with rich/corrupt relatives. Even if the leadership can contain the situation at this time, there will be a time, when the buildings start crumbling (or just topple over, like happened in Shanghai) that the fun is over. In the meantime a lot of accumulated hate against the west is starting to show up. It used to be concealed envy, but the general feeling is that China has somehow already overtaken the west and for some lesser minds, it is time for revenge. The call for a great army is real and the frustration about China being left out for the moment of military actions around the world is for some nearly unbearable. This translates in erratic arguing with only one topic: the west is bad and needs to be punished somehow, preferably by Chinese showing their superiority. Any feeling for logic is lost in the hatred and though China itself is a victim of Islamist threats and actions in the west of China, many go as far as to flaunt support for Al Qaida and sorts. Very worrying is that these extreme views are condoned on websites like Chinadaily. For example: http://comment.chinadaily.com.cn/art...ml?id=13663893
 P: 98 In a black and white world, a capitalist mercantile state is a force to be reckoned with. In a black and white world, a nationalist socialist totalitarian one-party state set on a mercantile strategy just isn't even funny anymore. I have no idea what western companies are doing there, except for that the world consists of shades of grey, and they better be darned sure China is light-grey.
 P: 1,409 Because the area where I grew up as well as the area where I spent most of my time before retirement have experienced significant losses in manufacturing and heavy industries that have put tens of thousands of people out of work over the years, I had the idea that America's 'deindustrialization' might be a significant factor in allowing China to overtake the US economically some day. Indeed, in at least one of the links below an economist predicts that China's GDP will be triple the US's by 2040. I don't have any sort of firm opinion on the OP's question, and was wondering if the more knowledgeable contributors here might comment on the credibility of the sources and assertions in the links below. http://www.marketwatch.com/story/gol...4?pagenumber=2 http://theeconomiccollapseblog.com/a...blow-your-mind http://www.amazon.com/Deindustrializ.../dp/0465015905 http://www.counterpunch.org/2011/08/...on-of-america/ http://en.wikipedia.org/wiki/Deindustrialization http://agonist.org/thatsuckingsound
P: 18
 Quote by ThomasT Because the area where I grew up as well as the area where I spent most of my time before retirement have experienced significant losses in manufacturing and heavy industries that have put tens of thousands of people out of work over the years, I had the idea that America's 'deindustrialization' might be a significant factor in allowing China to overtake the US economically some day. Indeed, in at least one of the links below an economist predicts that China's GDP will be triple the US's by 2040. I don't have any sort of firm opinion on the OP's question, and was wondering if the more knowledgeable contributors here might comment on the credibility of the sources and assertions in the links below. http://www.marketwatch.com/story/gol...4?pagenumber=2 http://theeconomiccollapseblog.com/a...blow-your-mind http://www.amazon.com/Deindustrializ.../dp/0465015905 http://www.counterpunch.org/2011/08/...on-of-america/ http://en.wikipedia.org/wiki/Deindustrialization http://agonist.org/thatsuckingsound
Well the notion of America "de-industrializing" is largely a myth. The U.S. is one of the largest manufacturers on the planet and up until recently was the largest, being outdone by China slightly (China is responsible now for about 19.8% of global manufacturing as opposed to the U.S.'s 19.4% - LINK). But the U.S. achieves that 19.4% with far fewer workers then the Chinese due to our much greater labor productivity.

Also, manufacturing is not some panecea to economic hegemony. It is important, but a service and knowledge economy is very important to, and this is something that China is severely lacking right now. Manufacturing in the United States hasn't so much declined (U.S. manufacturing output continues to increase year-after-year), it's that as a percentage of the economy, it has shrank over the years as the economy has grown by leaps and bounds in other areas. Manufacturing employment has remained relatively the same over the decades even though manufacturing continues to grow, which I suppose means that, roughly, the rate of manufacturing's growth is the same as the rate of increases in its productivity (so everytime a worker is replaced by a machine, the manufacturing sector grows enough to include an additional worker).

Low-margin, simpler things, such as toys, shoes, consumer electronics, etc...are manufactured in countries like China (and even then, the actual design of these products is in the United States), but high-margin, sophisticated things, such as medical devices, computer chips, instruments, sophisticated componentry, etc...are a great deal manufactured in the United States. The Chinese cheat also in that they artificially de-value their currency (which IMO the U.S. should counter with a tariff on all Chinese goods that are hurting domestic U.S. industries simply because they are cheaper due to the currency advantage) and also they subsidize certain industries as well. For example, the U.S. machine tools industry has been hurt by Chinese competition, and IMO a tariff should be levied on Chinese machine tool imports until they decide to stop de-valuing their currency the way they do.

Some myths about American manufacturing also are that it is primarily driven by the defense budget, which isn't true, that it is just a few big-ticket items that the U.S. manufactures (this also isn't true), and that American manufacturing is dominated by large corporations such as GE, Boeing, and so forth (also not true). American manufacturing consists of a whole bunch of small and medium-sized businesses along with large corporations.

On the issue of China's GDP tripling the U.S.'s by 2040, I'd put about as much stock into such a prediction as the tooth fairy. No one can predict economic growth or the condition of an economy that far out into the future. Imagine in 1981 trying to predict the U.S. economy circa 2011 for example. Such a prediction also makes the (rather large assumption I think) that China will continue growing at a very high rate of growth for the forseeable future, which is not likely. All economies that are booming are subject to busts after a certain point.
P: 4,542
 Quote by CAC1001 Well the notion of America "de-industrializing" is largely a myth. The U.S. is one of the largest manufacturers on the planet and up until recently was the largest, being outdone by China slightly (China is responsible now for about 19.8% of global manufacturing as opposed to the U.S.'s 19.4% - LINK). But the U.S. achieves that 19.4% with far fewer workers then the Chinese due to our much greater labor productivity. Also, manufacturing is not some panecea to economic hegemony. It is important, but a service and knowledge economy is very important to, and this is something that China is severely lacking right now. Manufacturing in the United States hasn't so much declined (U.S. manufacturing output continues to increase year-after-year), it's that as a percentage of the economy, it has shrank over the years as the economy has grown by leaps and bounds in other areas. Manufacturing employment has remained relatively the same over the decades even though manufacturing continues to grow, which I suppose means that, roughly, the rate of manufacturing's growth is the same as the rate of increases in its productivity (so everytime a worker is replaced by a machine, the manufacturing sector grows enough to include an additional worker). Low-margin, simpler things, such as toys, shoes, consumer electronics, etc...are manufactured in countries like China (and even then, the actual design of these products is in the United States), but high-margin, sophisticated things, such as medical devices, computer chips, instruments, sophisticated componentry, etc...are a great deal manufactured in the United States. The Chinese cheat also in that they artificially de-value their currency (which IMO the U.S. should counter with a tariff on all Chinese goods that are hurting domestic U.S. industries simply because they are cheaper due to the currency advantage) and also they subsidize certain industries as well. For example, the U.S. machine tools industry has been hurt by Chinese competition, and IMO a tariff should be levied on Chinese machine tool imports until they decide to stop de-valuing their currency the way they do. Some myths about American manufacturing also are that it is primarily driven by the defense budget, which isn't true, that it is just a few big-ticket items that the U.S. manufactures (this also isn't true), and that American manufacturing is dominated by large corporations such as GE, Boeing, and so forth (also not true). American manufacturing consists of a whole bunch of small and medium-sized businesses along with large corporations. On the issue of China's GDP tripling the U.S.'s by 2040, I'd put about as much stock into such a prediction as the tooth fairy. No one can predict economic growth or the condition of an economy that far out into the future. Imagine in 1981 trying to predict the U.S. economy circa 2011 for example. Such a prediction also makes the (rather large assumption I think) that China will continue growing at a very high rate of growth for the forseeable future, which is not likely. All economies that are booming are subject to busts after a certain point.
The question is "what" are both China and the US making?

It would be interesting to actually see what kinds of products are being made in the US, and what products are being made in China.

For products that are "low-tech", a lot of these products manufacturing bases are moving overseas. In terms of training workers to make these products, it is nowhere near as intensive (and also in terms of the abundance of cheap labor with the required skillsets) as a worker that has to say be involved in manufacturing an MRI machine, or some other high-tech product that requires a higher level of training.

It might actually be (and this is a conjecture but if you have actual data that answers my question that would be great) that all the cheap stuff is moved overseas and the expensive stuff (high-tech and other products that have a substantial value IP portfolio) are made in the states.

Under the above assumption if there is that skewness, then it would make sense that the "productivity" would be higher.

One thing to also note is that China's R&D capability is on the rise, and this should be kept in mind when thinking about possible future changes to productivity in manufacturing.
P: 18
 Quote by chiro The question is "what" are both China and the US making? It would be interesting to actually see what kinds of products are being made in the US, and what products are being made in China. For products that are "low-tech", a lot of these products manufacturing bases are moving overseas. In terms of training workers to make these products, it is nowhere near as intensive (and also in terms of the abundance of cheap labor with the required skillsets) as a worker that has to say be involved in manufacturing an MRI machine, or some other high-tech product that requires a higher level of training. It might actually be (and this is a conjecture but if you have actual data that answers my question that would be great) that all the cheap stuff is moved overseas and the expensive stuff (high-tech and other products that have a substantial value IP portfolio) are made in the states. Under the above assumption if there is that skewness, then it would make sense that the "productivity" would be higher. One thing to also note is that China's R&D capability is on the rise, and this should be kept in mind when thinking about possible future changes to productivity in manufacturing.
Don't have specific hard data, but I know that the U.S. excels in making things like medical devices, machine tools, sophisticated electronics and computers, computer chips, scientific instruments, industrial machinery and equipment, pharmaceuticals, chemicals, also big things such as automobiles, jet engines, airplanes, military things ranging from fighter jets to submarines to tanks, etc...you can find American companies making all of these things.
 P: 1,409 @CAC1001, Thanks for the feedback. Nice post. I wonder if what seems to be the trend wrt the financial sector's increasing percentage of the US GDP is good or bad for the US general economy. Also, as population growth slows down, then should economic growth slow with it? Regarding predictions of the US and China economies circa 2040, that does seem to be overly speculative. Still, China is roughly 4 times larger than the US, so it doesn't seem too over the top to suppose that its economy might be, say, twice as large as the US's in a generation.
P: 75
 Quote by CAC1001 Well the notion of America "de-industrializing" is largely a myth. The U.S. is one of the largest manufacturers on the planet and up until recently was the largest, being outdone by China slightly (China is responsible now for about 19.8% of global manufacturing as opposed to the U.S.'s 19.4% - LINK). But the U.S. achieves that 19.4% with far fewer workers then the Chinese due to our much greater labor productivity.
In volume, yes. As has been noted, ours ranges from low tech to high tech, as does theirs. The difference is that our materials science exceeds theirs. Make no mistake, however -- they've competent in high-tech, as well.

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