China isn't a sure bet as world's biggest economy

Source:Global Times Published: 2011-2-23 8:32:00

Handel Jones

Editor's Note:

Ladbrokes, the British bookmaker, has a tempting new offer for long-term punters: 6/4 odds that China will become the world's biggest economy by 2020. With the nation officially now having overtaken Japan, is this a safe bet? Is the fever of predicting when China will become the top economy linked to "China threat" theory? Global Times (GT) reporter Chen Chenchen talked to Tao Wenzhao (Tao), senior fellow with the Institute of American Studies at the Chinese Academy of Social Sciences, Jia Qingguo (Jia), professor and deputy director of the School of International Studies at Peking University, and Handel Jones (Jones), CEO of US-based International Business Strategies, Inc, and author of ChinAmerica (2010), on these issues.

GT: Ladbrokes' prediction is probably just one of the various forecasts given by analysts and experts across the world. Will that come true?

Jones: In order for China to surpass the US in GDP by 2020, there will be the need for the following to happen. First, China's average GDP growth must be higher than 8 percent. Second, the yuan must appreciate by 40 percent or more against the US dollar. Third, US growth must be in the 2 percent range. The most volatile variable in the above requirements is the second one.

Jia: The prediction fever reflects China's supercharged growth over the past three decades. However, things may go wrong.

Since the end of World War II, the US has faced up two formidable competitors: first the Soviet Union and then Japan. From the late 1950s to early 1960s, Americans guessed that the Soviet Union would catch up with them. However, this didn't come true.

Then in the late 1980s, Japan was considered a genuine economic threat but has since fizzled.

At the moment, China has a good momentum in economic expansion. Nevertheless, the possibility of fluctuation can't be eliminated.


Tao Wenzhao

GT: What should China do in order to escape the traps others fell into?

Tao: China can imitate the US in many regards. However, it can't replicate the US growth model both at home and abroad.

At home, China can't copy the US model of high consumption and low energy efficiency. If the Chinese are going to copy the US lifestyle, the earth won't be able to bear it.

China won't become another US on the global stage, either. The US will be  the global hegemony. During WWII, the US economy was bigger than that of the rest of the world put together. This can never happen again.

In the 1950s, China set a national goal of catching up with first the UK, and then the US. This is not the case today.

China's rise is a part of the emergence of a group of developing countries. No one knows whether China is going to surpass the US in GDP within the next decade. But even if that takes place, it should be a natural process.

Jones: I'm relatively optimistic about China. The key reason for the weakening of Japan was that the structure of the Japanese economy was based on manufacturing, not innovation. South Korea and China became more efficient manufacturers than Japan, and the Japanese manufacturing advantage was lost.

Besides, the Japan market is not large, and Japanese companies are forced to export. US corporations outsources their manufacturing to low-cost countries, primarily China, and in many cases were able to outperform Japanese companies.

Japan hasn't reacted to the competitive pressures and has built up large government debt. It has also become a high-cost manufacturing location, and with its aging population and lack of resources, it is not likely to recover.

China has many problems, but these problems are recognized, and there are attempts to address them. It will be very difficult for other countries to have both strong supply chains and low costs that can compete effectively with Chinese manufacturers.


Jia Qingguo

GT: According to a Gallup poll done earlier this month, 52 percent of American respondents believe China is already the world's largest economy. These numbers have gone up since 2009. Do you think US society is psychologically prepared for China's rise?

Jia: The US public doesn't have a great grasp on foreign affairs. A poll conducted in the US during the 1960s showed that one-fourth of Americans at the time thought China was still under the rule of the Kuomintang. Therefore, the results of the latest Gallup poll are not that surprising.

Jones: Many Americans are worried about China's rise. This is potentially good for the US, since Americans have become too complacent and not aggressive enough in building industries and increasing employment.

Americans are obsessed with consumption instead of focusing on production. US political leaders talk about creating jobs, but have done nothing major to support the strengthening of the US industrial base.

It would be much better for the US to recognize the threat from China now and take action to build its industry instead of waiting until 2019.

GT: China is too big to go bankrupt, and its economy is continuously expanding. How can Chinese growth benefit the world?

Jones: The best scenario is for the US and China to cooperate - there must be cooperation as well as competition in the US, China and the global markets. This approach will allow both countries to achieve gains.

A US that has a strong economy will represent a good market for Chinese goods and can help China grow its economy. A weak US means that growth in China will be slower, though there can be markets in other countries like India.

There will also be strong demand for food products as the diets of countries change with the building of the middle class. The water shortages in China will mean increased imports of food.

Jia: China has to improve itself to begin with. It has to address domestic issues like energy consumption, corruption, wealth gap and unsound systems.

China also needs to join global governance. It should learn to take use of global resources to serve its own needs, and in turn, create more public products for the world.

In the future, countries need to cooperate more in the energy field. For instance, global cooperation on new energy development will alleviate global reliance on traditional resources and benefit every player.

Posted in: Viewpoint

blog comments powered by Disqus