China Ready to Eclipse U.S. Economically

China is well on its way to eclipsing the United States as the world's number one economic power. The U.S. remains the largest economy for now but the margin is shrinking and China's GDP will surpass America's within the next five years. Once that is in place it will inevitably follow that China will similarly become the number one diplomatic, strategic and military power as well. This is happening because China is following a brilliant strategy to expand its reach and capabilities and the U.S. is following a foolish strategy of retrenchment.

This link will take you to a New York Times article detailing the trillion-dollar international investment program China is currently implementing. It includes things like a $6 billion railroad project into Laos and the rest of Southeast Asia, a $46 billion investment into electrical generation in Pakistan, the construction of a brand new port in Greece, and roads across Russia into Europe. It has already bought hundreds of thousands of acres of farmland in Africa and Latin America. All these are calculated to produce profits, grow China's influence in these regions, tie their economies to China's and speed the import of resources from and the export of Chinese products and financial influence into the targeted areas.

This is the fruit of the capital amassed beginning forty years ago when China threw off its Maoist economic ideology and relentlessly enlarged ever since in positive trade balances earned as manufacturer to the world. First the profits were used to develop China and now the continued surpluses are being reinvested to refashion the world into the Chinese economic orbit. Comparisons to the American Marshall Plan initiative of the late 1940s and early 1950s are strongly valid. The U.S. is and for some time has been a timid, inward-looking, short-sighted player by comparison. It's afraid to do big things now. Even a single modest high speed rail project in California is hamstrung by nay-saying and fought every step of the way. "We can't afford it," they say. So progress, growth are forfeited and the baton is being passed, or rather seized, by China.

This is not because of currency manipulation or some other form of chicanery. It's because China is being smart and we are not. If you do not spend to invest, modernize and expand, you languish and get surpassed. The U.S. is making some progress in things like green energy, but falls woefully short of the massive strides China is making on all fronts. Twenty years from now, when the nations of the world are clearly turning the cold shoulder to the U.S. and cozying up to China the US citizenry still won't understand why and how this all happened. But those of us who are paying attention, if we're still around, will. And we will obnoxiously be saying "I told you so."

Air Pollution Kills

The New York Times reports that the National Academy of Sciences has released a scientific finding on air pollution.  It finds that people in the northern part of China have their lifespans shortened by an average of five years compared to residents of southern China.  The reason?  Heavy air pollution caused by the massive proliferation of coal-fired electrical power plants.  The north is industrializing to a greater extent than the south, accounting for most of the difference.  There are also greater hydroelectric resources in the south.

The study was conducted by four scientists: two Chinese, one American, and one Israeli.  The study, examining records over a 20-year period from 1981-2001, may actually understate the effect, since many more plants have been built since then.  Such statistical analyses over twenty years and encompassing a large population make clear the heavy human cost of specific developmental choices.

The message is clear: cost-benefit calculations must include more than just direct economic factors.  They need to extend to such factors as medical,  life-expectancy, water and indeed all human and environmental costs associated with any contemplated course of action.  That would show the true cost of some seemingly cheaper developmental options.

California High Speed Rail

I saw an interesting article in the Fresno Bee Sunday. Tim Sheehan's piece, "China Eyes Calif. Rail System," told about the strong likelihood there will be Chinese financing for California's high speed rail endeavor.

We definitely need this capacity. I've ridden such trains in Britain and France. They go at least 200 miles per hour while trains here chug along at 60, at best. A friend who's recently been in China says returning to the U.S. is like going back in time. For distances under about 1,000 miles HSRs make train travel more convenient than going by air, once you factor in all the time and rigmarole at airports these days. They're also surpassingly more energy and environmentally friendly.

The numbers work out like this: California's 800-mile system will cost $43 billion. The state's voters approved a $9.9 billion bond in 2008. The federal government is expected to put in another $17 billion to $19 billion from Obama stimulus moneys. That leaves a gap of $14 billion to $16 billion to come from other sources.

Companies such as Alstom (France), Siemens (Germany) and Hyundai Rotem (South Korea) with experience in high speed railways in their home countries are already preparing bids. Wang Zhigou, Chinese vice minister of railways, said recently there will be bids from China too. With their cash surpluses and government subsidies the Chinese outfits are expected to have a heavy edge in the competition.

There are "buy American" provisions in the U.S. funding bills, so what the foreign contractors will be providing are technology and operating expertise. It seems we are now the third world nation, needing the advanced countries to help us fund, build and operate a modern transportation infrastructure. Still, it is something we definitely need to do. Shortsighted states such as New Jersey and Wisconsin that have turned down federal dollars to start their own lines will suffer the consequences in the future.

Chinese Teaching Their Teachers on Economics

I saw an intersting item this morning on the Chinese economy. Click here to see the entire article. Charles Hurtzler of the Associated Press reports that China's "economic growth rebounded to 10.7% in the final quarter of 2009." That's about twice the rate reported for the U.S., where the Bureau of Economic Analysis of the Commerce Department reports a 5.9% gain for the fourth quarter compared to the third quarter of '09.

So, how did they do it? "China, the world's third largest economy, escaped the worst of the global financial crisis by ordering $1.4 trillion in bank lending and government stimulus." The U.S. stimulus, passed about a year ago, was $787 billion on an economy four times the size of China's.

The Chinese have learned their economic lessons from the Westerners well. When demand slumps and the economy enters recession the government can supply the demand itself and spur recovery. That was the process first put forward in the New Deal and explained by the British economist John Maynard Keynes in his General Theory of Employment, Interest and Money in 1936.

Once again, the evidence shows it works. Calls to slash spending and lay off millions more workers now would lead to a downward spiral of demand decline, rising unemployment and back into severe recession. There will be a time to work on the deficit, but now is not that time. That will be a project to address when employment and demand are running strong, such as they were in the late 1990s when we were running surpluses and paying down the debt.

After the Rise of China and India

A friend writes from India that the South Asian giant is anticipating a return to 7% economic growth this year, and that China forecasts the resumption of 10% growth rate. Europe and the U.S., in contrast, are hopeful their GDPs will drop less than 1%. The rest of the prognosis is that India and China will soon run the world politically and militarily, as leading world economic powers have been doing since the modern period began. These things are indeed possibilities, but countervailing trends also admit of other likelihoods too, particularly if one has been paying attention to recent history.

The spreading of manufacturing jobs to successive waves of low-wage countries has and will continue to lift millions of people in the world's poorest societies out of abject want. India and China will advance and increase their prosperity greatly in the few decades ahead, as Japan did in the 1960s and 1970s. That is, presuming environmental disaster does not overtake the biosphere as another couple of billion humans engaging in first world consumption patterns severely tax the ecological capacity of the planet.

But even if not, nations like China and India will probably suffer much of the same stagnation that has derailed Japan since the late 1980s. This will happen for two reasons. First, production will continue to get more automated, ruthlessly paring the factory jobs that have provided the bulk of working class employment there in the current boom.

Second, as their wages rise their labor forces will fall prey to industry's subsequent move to the next wave of rock-bottom wage countries, probably Latin America and then Africa, some 20 or 30 years hence. The process is inexorable given the reduction of trade barriers and the logic of business capital. The spotlight shines but briefly on a favored region. Like a line from All Quiet on the Western Front, "Forever isn't always a long time around here."

China Rising

I hope you were able to look in on the Olympic Opening Ceremony from Beijing last night. What the world witnessed was the coming out party for the next global superpower.

The presentation was a tour de force combining modern technology with ancient philosophy, cooperative effort with individual initiative, beauty with bulk, the sentimental with the inspiring and discipline with creativity. In short, it was a tribute to the yin and the yang, the age-old Chinese search for harmony in the reconciliation and melding of opposites. And it was all done on such a massive scale as to leave no doubt that China is the Leviathan of the world.

China is home to one-fifth of all humanity. It has a GDP now ranked third and on track to be first by 2030. Its population stands at 1.3 billion persons. It still has a larger number of citizens in abject poverty than live in the entire United States, but now also has a larger middle class than does the United States. Its burgeoning metropolitan centers boast infrastructure and amenities that make most American cities embarrassingly decrepit by comparison.

It graduates four times as many engineers a year as do the universities of the United States, and its children outperform ours in comparative tests. They are competitive, have a sense of themselves on the upswing of history and are hungry for more.

Think of China as being where the USA was in 1890. They are at the point of rapid industrialization, where increasing prosperity and opportunity coexist with growing pollution and overcrowding. But they enjoy the benefit of the lessons of our and the other industrialized nations' successes and shortcomings. Last night's program remained mindful of the spiritual and human elements of progress throughout, something Americans often seem to have trouble doing.

China is intrinsically neither our friend nor our enemy. They are a great nation embarked on an exciting path of development that promises great benefits for their people and society. If our society proves unable to inspire its people to a similar dedication, particularly with regards to an ethic of achievement in education, and a commitment to the development and maintenance of a modern infrastructure in all its aspects, we shall surely be easily pushed aside in the next few decades.

Such is the course of the rise and decline of peoples and nations.