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14 May 2013

America versus China in the 21st century – bet on the eagle, not the dragon

Which country do you think this is about: 

  • “Fitch Ratings has just downgraded [its] debt, warning that credit has jumped from 125pc to 200pc of GDP over the last four years, with mounting reliance on shadow banking that lets banks circumvent loan-to-deposit curbs. This is why George Soros has been warning that there could be a ‘run’ on [its] state banking system akin to the Lehman bust.”

It sounds like it could be just about any debt-laden nation in the western world, but, as you will have guessed the country in question, is China.

Indeed, given the following fact, it could only be China:

  • “Total credit has jumped from $9 trillion to $23 trillion in four years, an increase equal to the entire US banking system.”

These extracts come from another eye-opening piece by Ambrose Evans-Pritchard for the Daily Telegraph, which serves as a corrective to the idea that China is destined to overtake America in the course of the current century.

As things stand, China is already halfway there:

  • “As of last year US GDP was roughly $15.7 trillion, compared to $8 trillion for China on a nominal exchange rate basis, the measure that matters for gauging economic power.”

With four Chinese citizens for every American and a substantially higher rate of economic growth, can it really be that long before the People’s Republic takes the number one spot?

It can when you consider what lies behind China’s ‘growth miracle’:

  • “[A World Bank / Chinese Development Research Council report has] warned that China’s 30-year miracle is nearing exhaustion. The low-hanging fruit of state-driven industrialisation and reliance on cheap exports has already been picked. Stagnation looms unless Beijing embraces the free market and relaxes its suffocating grip over the economy. ‘Innovation at the technology frontier is quite different in nature from catching up technologically. It is not something that can be achieved through government planning,’ it said.”

China’s economic boom has also come at the expense of its environment. The Financial Times reports that “air pollution might have caused about 1.2m premature deaths in China in 2010 alone” and that “Beijing has registered a 60 per cent rise in lung cancer cases in the past decade.”

While lax pollution controls are killing China’s people, its draconian one child policy is preventing many more from being born. The country is firmly established on a demographic trajectory that, in the absence of mass immigration, is certain to result in severe labour shortages in coming decades.

  • “The work force began to contract in absolute numbers last year, falling by 3.5 million. The International Monetary Fund says it will now go into "precipitous" decline, and much earlier than thought.
  • “If you are wondering why police are still seizing pregnant women in Chinese cities and delivering them to clinics for forced abortions when they cannot pay the fine for breaching the one-child policy, you are not alone.”

This is not a good position from which to challenge America’s still overwhelming strengths:

  • “On almost every key measure, including the fertility rate and high science, there is no credible challenger. Core US defence spending is still greater than that of the next 10 countries combined...
  • “America has managed its dominance in such a way that it has not brought about a containment alliance against it by threatened powers, and that is no small achievement. Like Wagner's music, US diplomacy is better than it seems.”

So, it looks like we may be in for a second ‘American century’ after all – which, given the alternatives, may not be such a bad thing.


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