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So we seem to be discussing topics and the crises in hindsight... this is what happened, why didn't we see it coming, etc. This week I want to focus on the future of the U.S. Where are we going now in relation to other nations? Is our debt going to be a huge factor in our development? What impact will China have on the global economy? According to the IMF, China's growth this year is at 9.6%, down from 10.3% last year. See the article here. That's still a very good sign for China. (our growth rate is 3.1%, just to give you some perspective). Their government is smartly learning from the examples of past nations and continue to regulate business, moving it from the public to the private sector. This allows them to facilitate and not let anything get too out of hand. Their resources are seemingly endless and attract numerous global customers with cheap costs of production and cheap products in general. In 20 years (or by 2020, I can't remember), it is estimated that they will surpass America as having the strongest economy in the world. What do you guys think? What should the U.S. do about this threat? Maybe this is an old topic, but I am personally worried about the U.S.'s future with all this debt while other nations are able to continuously generate high growth. (Will mention India on another day). Check out this article too on China's economy.
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This belief that China will become the next world's strongest economy scarily follows the theory of economic leadership cycles. I can't remember at the moment who's theory this was, but every 100 years a new leader comes along who leads the world economy. The U.S. has lead since the end of the world wars, and for the past decade economists have assumed the next world leader will be China. (if anyone remembers what I'm talking about please chip in) China has been able to manipulate their resources and cheap production in order to gain the most profits possible over the few decades. Due to the current recession and the large amount of debt the U.S. owes, I think it's entirely possible that China's economy will surpass our own. As scary as that may be, I am not sure what the United States government will be able to do to remain on top at this time. Hopefully they will able to come up with something in the next ten years.
ReplyDeleteWhile China's growth is substantial, the real question for me is whether or not it is sustainable. If the pressure on China to de-value the Yuan succeeds, you will see a very different nation that will struggle to maintain its infrastructure and economy. Problem with that is the US is slowly becoming a subsidiary of China through debt sales, and if China calls our loans in, I dont know what we will do.
ReplyDeleteYes, China is a large economy, the second largest in the world. And yes, it is still the fastest growing economy in the world. But, the place has many problems that are growing worse.
ReplyDeleteDesertification is a huge problem that has not been given much notice. About 1/3 of China is desertified. The Gobi desert is less than 100 miles northwest of Beijing and it creeps closer every year. Beijing is also running out of water.
Dai Qing, a prominent Chinese environmental activist, told our class (during study abroad) that the Chinese government has had talks about possibly making Shanghai the capital. Beijing is under serious ecological distress, yet there are still plans to expand the city. It does not make much sense. The water table is dropping in the city. And, the climate is so arid, that measures to stop the sands have all resulted in failure.
Ecological destruction is starting to catch up with the Chinese.
I've read a bit about the leadership cycles that Becky is refering to. But, I don't think they really hold true anymore. In the past there has been significant amounts of undiscovered resources and innovations that, when discovered, led to impreial powers. I think we are essentially past this point.
ReplyDeleteRegardless, China is not going to be that next leader. I think Richard and Mark are spot on. The extreme poverty in China and the environmental issues will see that China hits a plateau soon. China is in our in a period similar to our industrial age.
In the end, for China to realize its capacity, I think the current regime will need to fall.
China also has a substantially higher growth rate than the US because the Chinese save a ton compared to the consumption driven US. As the Solow growth model tells us, savings and policy that promotes savings also promotes economic growth.
ReplyDeleteI agree with Dane, Richard, and Mark that the China's economy faces problems with sustainability. Fast growth rates have fired up the country’s economic engines. However, more recently it has also led to stubbornly high inflation, which threatens to overheat the economy and undermine the long-running boom that the country has experienced. Bank lending in China has picked up strongly last month. Also food, energy, and raw material prices have risen sharply this year.
ReplyDeleteA NY times article pointed out the skepticism in sustainability also. "In recent months, the International Monetary Fund and a growing number of economists have warned China that a credit and asset bubble could derail the nation’s growth. Some experts are suggesting that soaring asset prices could eventually tumble, leading to a wave of non-performing loans at the big state-owned banks. "