China on Course to Overtake US Economy

Here’s a stat to get the old ticker pumping first thing in the morning:

Past 25 Year Growth Rates:

China: 8%+
U.S.     3%

on an inflation-adjusted average annual rate

Does that place a recent meme circulating on Wall Street (particularly from right-leaning economists) that the increase in Oil prices is due to "speculators" into some context?

Consider this from the WSJ:

Wsj_china_01232005191041_2Understanding 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. (emphasis added).

The obvious conclusion is that we are entering a period of global competition for resources, and our biggest competitor will be China (pop: 2 Billion), followed closely by India  (pop: 1 Billion). Indeed, China has already surpassed Japan to assume the position of No. 3 trader in the world, behind
the U.S and Germany.

I have been thumbing through two books  on the subject:  The Chinese Century by Oded Shenkar, and China, Inc. by Ted Fishman, the latter of which I will be dragging on a vacation/business trip at the end of the month.

The Journal optimistically notes that China’s historical periods of dominance tend to be self-defeating:

"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."

The implication is that unless the communist capitalists move towards a more market based (versus centrally planned) economy, its only a matter of time before they make a fatal error. I’m not all that convinced this is a persuasive argument. Consider in tandem with that thought our market based economy in the United States:  How highly manipulated (i.e., non-market forces) is the US economy?

For the full blown China paranoia, however, we need to go to  321 Energy’s discussion on "China’s Master Plan to Destroy America:"

"The final war for the planet’s resources has already started. You name the commodity and China’s buying it and consuming it in HUGE quantities. Last year they consumed nearly half of the world’s cement, twice the world’s consumption of copper, and nearly a third of the world’s coal, 90% of the world’s steel plus nearly every other commodity you can think of has been in greater demand by China.

However in order to propel such furious economic growth, there is one key commodity you need above all the others. And if you can’t get enough of it, having all the other resources won’t matter. The most prized and sought after commodity which makes the world tick is oil. With out it, you have nothing. Your economy would be frozen and your military would be left inept.

As China’s Master Plan to Destroy America manifesto outlines, the multifaceted battle plan recommended by the Chinese military has taken shape . . .

Frankly, destroying the biggest buyer of your goods doesn’t sound like much of a brilliant plan. But get past the paranoic ravings, and the discussion on energy competition is quite insightful.

Also, the CIA has quite a few things to say on the subject. The full report is linked below, but I had to include at least one graphic:

click for larger graphic:

source: CIA, Mapping the Global Future

Lastly, a friend did an absolutely brilliant analysis of how China is securing their energy future in Russia and Venezuala; If I can dig it up, I’ll post it later . . .



Mapping the Global Future: Report of the National Intelligence Council’s 2020 Project
NIC 2004-13
CIA, December 2004   (PDF version)

China and the Final War for Resources   
Bill Ridley
321 Energy, February 9th, 2005

China May Be on Course To Overtake U.S. Economy
THE WALL STREET JOURNAL, January 24, 2005; Page A2,,SB110651152358433393,00.html

Category: Commodities, Economy, Politics

The Growing Risk of Housing ‘Bubblettes’

Category: Economy

Media Appearance: Power Lunch (2/10/05)

Category: Media

New Column up at Real Money (02/9/05)

Category: Media

Internals are Ugly

Category: Markets

DVD Sales Boom, 2004 a Record Year

Category: Film, Finance, Music

Video Game Industry Sales Reach Record Pace in 2004

Category: Music, Web/Tech

Jobs Data Round Up

Category: Economy

Barron’s picks up Unemployment Rate: Worse than it Appears

Category: Economy

Debate on Downloading

My friend Cody Willard is a hedge fund manager, focused on telecom and technology. He and I had an interesting public debate yesterday, on P2P, downloading and the music industry.

This was originally published on the (subscription only), but is reproduced here with permission. It got enough positive feedback that I thought Big Picture readers might find it intriguing. For your reading pleasure, Me vs. Cody. Enjoy!


Cody WIllard  :   Piracy
Steals Music Companies’ Thunder

2/7/2005 1:23

The effects of piracy on the economy and the world are just getting started.
Music company EMI told investors today that it would miss sales
projections for the year by about 9%. Trading in England, the stock took a huge
hit on the news, wiping out billions of dollars of value.

Music content sales such as records, tapes and CDs have long trended with the
broader economies. With global economies steadily growing the last couple of
years, the music business should have been on fire. Alas, that is not the case,
and the single biggest reason is piracy.


Read More

Category: Finance, Music