[Marxism] China May Be on Course To Overtake U.S. Economy

["acpollack2@xxxxxxxx" <acpollack2@xxxxxxxx>]

P.S. to below: the special MR issue on China from a couple months ago will be 
out in book form in February.
--------------------------------
January 24, 2005
China May Be on Course To Overtake U.S. Economy

By CHARLES HUTZLER
Staff Reporter of THE WALL STREET JOURNAL
January 24, 2005; Page A2

During the 1950s, China's communist government boasted that its economy would 
surpass Britain's in 15 years and catch up with the U.S.'s in 30. The 
prediction proved disastrously wrong, as did Mao Zedong's policies, which 
brought the economy to ruin.

But now, a half-century later, many economists say those goals look more 
attainable. Having grown an estimated 9.2% last year and maintained an 
inflation-adjusted average annual growth rate of 8% or more for the past 25 
years, China's economy seems to be on a trajectory to one day overtake the 
U.S.'s, which has been growing at an inflation-adjusted average annual rate of 
about 3% for the past 25 years.

Predicting when China will achieve economic primacy isn't an exact science; it 
depends heavily on assumptions about future rates of growth and currency 
valuations, among other factors. When economists surveyed last month by The 
Wall Street Journal were asked to predict when -- if ever -- this would happen, 
the projections varied widely. Some economists said "never" while a few didn't 
even bother to take a guess, but most economists said China will overtake the 
U.S. in the next 20 to 40 years.

"If you take a survey of all the CEOs of listed companies in America and ask 
them, 'What's the single factor that's going to change the world,' it's going 
to be China," says Donald Straszheim, an economist who specializes in China and 
heads Straszheim Global Advisers LLC in Los Angeles. Mr. Straszheim predicts 
the pivotal moment will come in 15 years.

Understanding this trend is far from academic, with an impact likely to shake 
up businesses and governments and today's U.S.-driven world order. Having the 
world's largest economy will give China a greater say in global affairs. Its 
currency, which is now pegged to the U.S. dollar, will join the yen and the 
euro as globally traded currencies and in doing so will erode the dollar's 
position as the world's default coin of choice. China's military, which has 
enjoyed double-digit budget increases for much of the past 15 years, is likely 
to grow larger, bolstered by the huge economy.

The Central Intelligence Agency, for one, is taking note. A research arm, the 
National Intelligence Council, issued a report last month likening China's 
emergence and its impact on the world to that of the U.S. in the last century 
and Germany in the 19th. The report says that by 2020 the world's geopolitical 
center of gravity will tilt toward Asia, especially China, the economy of which 
will have surpassed Japan's to become second only to that of the U.S.

Events could knock China off course. The country is beset by deep-seated 
problems, from shortages of energy resources and water to severe environmental 
degradation and an enlarging gap between the prosperous and poor that could 
generate widespread unrest. Some economists argue that to sustain long-term 
growth, market economies require political freedom -- something the communist 
government shows scant intention of bestowing.

The more optimistic predictions aren't based solely on simple calculations of 
gross domestic product but take into account other factors. Factoring in future 
appreciations in the Chinese currency, for example, makes the economy 
relatively larger. Another is purchasing-power parity, which adjusts currency 
conversions to measure the relative costs of goods and services. Because labor 
and, hence, many services are so cheap in China, relative spending power is 
high. Using this measure, the World Bank ranks the Chinese economy as second 
only to that of the U.S., while in a straight dollar conversion, China is No. 6 
-- ahead of Italy and Canada.


The more bullish forecasters say the future China-oriented world already is 
taking shape. The country is the No. 3 trader in the world, behind the U.S and 
Germany but ahead of Japan. Already China is trying to leverage its roles as 
huge consumer market and world workshop to influence the technology standards 
on wireless computing and communications, much as the dominance of Microsoft 
Corp.'s personal-computer operating system helped it become the global standard.

Underpinning these dynamics is a unique advantage: "Size does matter," says 
Oded Shenkar of the Fisher College of Business at Ohio State University. Author 
of the recently published book, "The Chinese Century," Mr. Shenkar predicts 
China will assume the No. 1 spot within 20 years. His estimate does include 
adjustments for relative purchasing power and like many economists, Mr. Shenkar 
says government statistics underestimate the true size of the Chinese economy, 
by as much, he says, as a fifth.

The lure of this big market getting bigger year by year is drawing ever greater 
amounts of foreign investment, $60 billion last year, creating, Mr. Shenkar 
says, a virtuous cycle. "The additional investment is going to make the Chinese 
economy grow faster," Mr. Shenkar says.

Sustaining long periods of strong growth is hardly unprecedented. If China 
edges out the U.S. in, say 2041, as a Goldman Sachs research paper predicted in 
2003, it will have done so in about 65 years. The U.S. took about 100 years to 
surpass Britain as the world's No. 1. Japan rose to second place from the ruins 
of World War II in 30 years.

China has many of the advantages that the U.S. and Japan enjoyed in their 
ascents. Like the U.S., it has land in abundance and a sizable domestic market, 
which drives internal demand. Like Japan, China has a highly educated 
population, an undervalued currency and access to capital and technology.

China also has a history of economic supremacy, having been the world's largest 
economy for much of the 700 years starting around 1000. In an echo of today's 
capital and technology transfers, the introduction of early-ripening rice and 
later of New World crops like maize and sweet potatoes created food surpluses, 
allowing the buildup of porcelain and silk industries that dominated global 
trade, says Kent Deng, an economic historian at London School of Economics. As 
late as 1730, historians say, the country produced a third of the world's 
manufactured goods. China currently dominates about 12% of world manufacturing.

Yet history provides another lesson that puts the Chinese economic leviathan in 
perspective. Despite its dominance, the country was quickly eclipsed by the 
rapidly industrializing Western European nations and the U.S., in part because 
it failed to develop systems of scientific research and ways to commercialize 
findings. Much the same criticism is leveled today at Chinese companies and 
government, whose research and development spending trails that in wealthier 
nations.

But even if China manages to maintain strong growth and rival the U.S. in 
economic size, its people still won't be rich. According to the Goldman Sachs 
research, by 2040, gross domestic product per capita in China will be about 
one-third that of Americans. That will somewhat mute the significance of 
grabbing the No. 1 spot.

Write to Charles Hutzler at charles.hutzler@xxxxxxxx

 URL for this article:
http://online.wsj.com/article/0,,SB110651152358433393,00.html


 Hyperlinks in this Article:
(1) mailto:charles.hutzler@xxxxxxx



Copyright 2005 Dow Jones & Company, Inc. All Rights Reserved

This copy is for your personal, non-commercial use only. Distribution and use 
of this material are governed by our Subscriber Agreement and by copyright law. 
For non-personal use or to order multiple copies, please contact Dow Jones 
Reprints at 1-800-843-0008 or visit www.djreprints.com.




_______________________________________________
Marxism mailing list
Marxism@xxxxxxxxxxxxxxxxxxx
http://lists.econ.utah.edu/mailman/listinfo/marxism