Monday, April 25, 2011

China's economy to surpass the USA by 2016? Maybe, but . . .

. . . "there's many a slip twixt the cup and the lip", as the old proverb notes.

The International Monetary Fund stated a couple of weeks ago that the economy of China would surpass that of the USA by 2016, if current trends continue. It's certainly possible (and I'd say it's eventually inevitable): but there are some humongous roadblocks ahead for China. It has to sort out its enormous property bubble (which I wrote about yesterday), and deal with massive, institutionalized corruption, nepotism and inefficiency, just for a start.

The primary problem is that China's economy is currently utterly dependent on exports. Its own population isn't (yet) a big enough market to absorb most of its production. The country's been running at a huge current account surplus, exporting much more than it imports (which has, in turn, allowed it to make available highly competitive financing to its exporters, getting them even more business overseas). However, as financial recession tightens its grip on many of its export markets, China's current account surplus is shrinking, and might vanish altogether if the European and US economies deteriorate further. If that happens, it might take decades to recover - particularly because protectionism is likely to rear its head in opposition to free trade (as it always seems to do during times of economic hardship). That might close (or at least restrict access to) many of the markets on which China depends.

I'll be watching this situation with intense interest over the next few years. For all the world's major economies, it's going to be a wild ride . . .



Dad29 said...

It would be nice if you'd acknowledge that "free" trade is not the same as FAIR trade.

We've asked US manufacturers to bear horrific regulatory burdens--in excess of the cost of income taxes, by the way--and none of them apply in PRChina.

IOW, the US Government, and the States, have disabled the best engine of jobs for the entire middle class, but the propaganda is that it's "free" trade.

It's not.

trailbee said...

I looked at that clip, sent the link to my friends. I got the feeling I was watching some futuristic film, with no people. And, the people we did see, had a very unique vision of what their government owed them. But they were right, if you read The Manifesto. These people did everything their government asked of them, and trained at birth, they had no other role models for back up.
Have a child and then farm it out? The entire culture seems back-assward, at least to me, probably not to them. But, there still is this feeling of entitlement. Isn't that interesting? It is everywhere, in all cultures. How unique.