Posted on 03/30/2012 8:53:59 PM PDT by nickcarraway
Michael Pettis has challenged us to a bet.
For those of you who don’t know him, Mr Pettis is a finance professor at Peking University’s Guanghua School of Management and a frequent blogger. He would like to bet that China’s dollar GDP (calculated at market exchange rates) will NOT surpass America’s in 2018. That is the year that China's economy will overtake America's if you stick with the default assumptions in our most recent* interactive chart, which allows you to plug in your own guesstimates** of future growth and inflation in the two countries, as well as the exchange rate between them.***
When he is not fretting about China’s economy, Mr Pettis runs his own record label in Beijing (Maybe Mars). If we lose the bet, he’d like us to invite one of his indie-rock bands to perform at an Economist conference. If we win, he has to give us a record deal (not really).
Free Exchange is happy to accept the bet, one blog with another. We would also love to see a band like Ourself Beside Me, Birdstriking or The Offset: Spectacles playing at an Economist conference. But we’re reluctant to commit our hard-working colleagues in the conferences division to the logistical challenges that might entail, so we were hoping we could keep it simple: how about a bottle of scotch (or baijiu) to the winner—and we’ll see what we can do about the band closer to the time?
We’d also like to propose a counter bet. Mr Pettis reckons China’s “average growth in this decade will barely break 3%.” He is definitely smarter than your average bear, but that prediction looks aggressively pessimistic to us. We’d like to bet that growth will break 3%. (Let’s say we win if it exceeds 3.5% on average in constant yuan over the decade.)
Some footnotes:
*The chart and the accompanying article were published before the full-year 2011 GDP figures were released. Using the official 2011 figures with the same assumptions suggests China will overtake America in 2019 not 2018.
**Our interactive chart is meant to be interactive. We’d be happier if people played around with it and came up with their own projections, rather than making too much fuss about ours. We wanted to keep the chart as simple as possible. As a consequence, it asks for average rates of growth, inflation, and exchange rate appreciation—but you cannot vary the rates over time. Obviously, in reality we would expect both the rate of growth and the rate of real exchange-rate appreciation to slow as China catches up with America. Our sister company, The Economist Intelligence Unit, which uses a more sophisticated model, foresees China overtaking America in 2021.
***People often forget about the importance of inflation and exchange-rate appreciation in these calculations. China’s real GDP grew by 10.6% a year over the last decade, but its nominal dollar GDP grew by 18%, thanks partly to the appreciation of the yuan against the dollar and partly to faster inflation in China than in America. One of the nice things about the interactive chart is that it helps people appreciate the significance of these two factors. Our default assumptions look perfectly reasonable by today's standards (growth of 7.75% in China, 2.5% in America; yuan appreciation of 3% and inflation--as measured by the GDP deflator--of 4% in China and 1.5% in America). But in combination these assumptions deliver a very striking result.
America first.
China has already surpassed American in technology exports.
Our “lead” decreases by the day, that we continue to allow the bubble-headed scam called “free trade” to destroy our jobs and industry.
Mr.Pettis no doubt knows what he is talking about.
Is the Chinese Stock Market About to Crash?
http://www.zerohedge.com/news/chinese-stock-market-about-crash
“”The eternal optimists would have us all believe that China will awaken from its slumbers amid a blaze of new, debt-fuelled spending initiatives and so buy up all the goods we find so hard to sell at home (without offering a substantial concession in price)” is how Sean Corrigan begins his assault on the non-reality that is China’s ‘save-the-world’ protagonists. It is worth noting, however, that those who actually invest in the place seem to be too busy selling their equities to pay much attention to the Panglossians and Polyannas.”
Technologies made by American, European, Japanese, and South Korean companies but using the “slave labor” in China mostly for assembly...
“China has already surpassed American in technology exports.”
Yeah, from our ideas which they stole from us!!
Our problem is internal. Back in the 1960s and 1970s we used to educate and graduate engineering students. Once the education system became thoroughly rotten, employers would no longer hire American engineers but instead went foreign.
It will eventually come back due to home schooling.
I thought it was goin’ to be next Tuesday afternoon.. about tea time.
Only one problem.
Economically, perhaps. Growth, no doubt. Just like weeds. Lots of low quality.
Still to this day near 100 percent of the patents in use trace back to New York. I believe nearly 95 % on all new inventions were made in the US of A.
I also believe the Chinese are actively stealing ideas to replicate. Lets look at their new jet fighters....
I am sure one day Islam too will invent something worthy of note, probably ‘bout the same time Africa creates a idea.
Its interesting to note the correlation between western man, his development and his religion.
I’ll call that obvious bluff.
China can compete in the copy tech market, but while they are probably better than average at new tech it will be awhile, a generation as a guess, before they can compete with innovation.
If present trends continue China wont catch up, America will fall behind ...
If Obama stays in office he will just surrender all technology and manufacturing to China just to destroy us.
Americans are innovative, particularly those who do not go to college. College tends to teach you what things are impossible. Learning how to make do or do without tends to teach one how to think and innovate.
The following story demonstrates what I mean: in the 1920s a graduate student at Princeton wrote a thesis on why it was physically impossible to build radio tuning coils small enough to create an automobile radio.
A self-taught man, not knowing it was impossible, went ahead and did it.
“...Tuning coils in the radio frequency stage of a set were rather large and [Bill] Lear knew how to reduce their size by using Litz wire. Wire braided from many fine strands has a large surface area giving it high conductivity at radio frequency. Lear borrowed $5,000 from his friend Algot Olson to make machines to wrap the strands, braid the wire, and wind the coils. The industry was set up in the basement of his mother’s old house on 65th street, and done with assistance of Don Mitchell, a railroad electrician. Lear called the company, Radio Coil and Wire Corporation. They took an order of 50,000 coils from Eugene F. McDonald of Zenith Electronics when they demonstrated them. These small coils were one-quarter the size of coils with solid wire.”
Yes, it is the Lear of Lear Jet fame. Bill Lear never graduated from high school, yet he was a lifelong inventor. And the fellow from Princeton? I can never remember his name!
Well - as an old great granny, I remember not too many years ago when it was JAPAN that was going to “take over America. “
They owned half of L.A. and other cities and lotsa land...
but a funny thin happened along the way. They fell on hard times - and things went up in smoke
Japan does not have a population of 1.3 billion...
From a strategic viewpoint why should China rush. She has no foreign wars or obligations with her military. The only flashpoint with the US is if Taiwan declares independence. Other then that China has retreat positions if she cannot bluff her way to what she wants. China can afford to build space station, mission to the moon and aircraft carrier operations at a leisurely pace while her economy expands and her foreign reserves increases as the US decreases. Look up www.globalfirepower.com. China is distant third to US in defense but she has $ 2600 trillion in foreign exchange reserves while the US can only muster $ 150 trillion and decreasing from deficit spending. China’s strength is fiscal not military. Without firing a shot the US due to crippling debt is forced to reduce her military forces and pull back from the world, while China simply fill in the vacuum created. This does not mean China is perfect. She has internal and cultural weakness. The US had the same problems in her rise to world power. War of Southern Succession (American Civil War), racial inequality, labor and environmental abuses is part of our industrialization process. US resolved it thru our Constitutional, Christian, and democratic ideals. China has survived dynastic changes and upheavals and has centuries of experience and the modern world for her leaders to choose from to resolve their own internal social issues.
While there is certainly a possibility of the Chinese economy becoming larger then our own by 2022 (though I personally have my doubt’s), I think that the reasons that they give for that in the article is very flaws - namely, assuming that the Chinese rate of growth will remain the same, simply... because. Plenty of industrializing nations like Mexico or South Korea saw similarly high levels of GDP growth - and none of them managed to keep it up. Such great levels as their proposed 7.75% growth rate are unsustainable and can’t be kept up into the future indefinitely by China. It will crash down to a level more comparable with other industrialized nations sooner or later, and probably sooner. The West may be drowning in financial problems, but so is China.
Well said.
That illustrates exactly the greatness of America and Americans. Its how we are wired to think and to believe in ourselves.
When children in other parts of the world are asking “Why?” a child in America playing with his toy rockets and chemistry set is asking “Why Not?”
Culture, religion, politics, hierarchy, cronyism absolutely inhibits innovation.
great story, thank you for sharing
You’re welcome.
You make some very good points.
The major difference between China and the U.S.A. is that we never stop at frontiers, we just plow on ahead. China did stop once it grew to a certain size and then hesitated to explore overseas even though possessing a sizable navy. The China of the Ming Dynasty, and the Ottoman Empire in what is present day Turkey, were the superpowers of circa 1500 AD.
If anyone then had said that by 2000 AD, millions of people world-wide would live in wealth because of an industrial revolution centered in what was then a rustic Europe and a wilderness in North America, that person would have been considered insane.
We’ve come a long way, and I don’t for a moment believe it is over.
However this election is very important, because the wrong person as President will destroy this nation and set us back. Our military for the past twenty years or so has been used to police the world and maintain security for international commercial interests. This is called Globalism. Romney and the Bush coterie support it, and it is bankrupting the nation. These elitists don’t give a damn about anyone’s God-given rights. All they care about is keeping themselves in power and lucre.
China already is larger than the US in electricity consumption and total energy consumption in general.
Auto production and consumption, China already is larger.
Construction, no matter how you measure it, concrete consumption, square footage built, etc., China is BY FAR larger than the US.
Steel production, about 6 or 7 times larger than the US.
And when measured in purchasing power parity, China's GDP already begins to approach the US, roughly 3/4 of the size.
The list goes on.
2018 may be assuming if all goes well, but I believe prior to 2025 is not a bad bet. And that is slightly over a decade from now.
Well....Japan is still the 3rd largest economy in the world. And was second for a long time. And while they fell on hard times, and still are in it, they are expected to be the 3rd largest economy up til 2020.
Japan's limitation is that they are a nation of only 125 million people vs. the US which has about 310 million people. And China, of course, is about 1.35 billion people. Those factors need to be kept in mind.
Welcome to FR.
Sounds almost like “China as Middle Kingdom” narrative.
Only thing I ever saw that I respected was when he cried at the tragic death of a child in Africa from a disease that DDT could have prevented. And anyone would have that is human.
He's not much of an authority on anything, except his theories.
/johnny
If BO is re-elected it will be within the next 4 years not 10.
Our politicians and big corporations have already sold out the American citizen to the Chinese, and other countries for big $$$$. By the time it becomes a huge problem, they will be retired and living on their ill gotten riches while we and our families suffer the consequences.
Now China just said it will still buy Iranian oil despite Obama’s begging that they stop.
Excuse me, but did you say TRILLIONS there?
Regards,
We have no national interest in 1.3 billion poor, frustrated, and angry Chinese. We have a big national interest in 1.3 billion increasingly prosperous, optimistic Chinese. China has finally figured out that it doesn't have to be poor. That's good.
China still has huge problems. Despite the growth in the cities, it still has 600 million people in the countryside living at subsistence levels. It has terrific infrastructure and environmental problems and a rudimentary social safety net. It has to figure out a new role in the international economy as it matures as an economic giant, and therefore a leader; it has to begin taking responsibility for systemic order. (It may take a severe recession or two to drive the point home, but China is too big to be a freeloader any longer. That's a hard lesson to learn.) It has to shift from export-led growth to a greater reliance on domestic consumption, and it has to become a better customer for its major trade partners to maintain open markets.
Probably most difficult, it has an enormous political and human rights hill to climb. I wouldn't want to trade places with them. But the emergence of China as a market oriented economy with a mass middle class is one of the most positive developments of the past generation, the growing pains notwithstanding.
So ... one of these days, China will have the world's biggest economy. For awhile. Then India may overtake it. Or we will, once enough Mexicans move north and we get to a billion people ourselves. But that's a story for another day.
China has geographic limits as well as the world’s largest population that make it impossible to overtake the U.S.
I am only superficially familiar with history of China but am intimately familiar with history of India having finished my undergraduate degree there. I can vouch for accuracy on Jared Diamond’s words in context of India.
Here is a youtube clip on India, it’s historical background and purported future.
http://www.youtube.com/watch?v=xjB_Tf7Cy3A&feature=related
I get it.
So we should just be unconcerned about what’s good for America, because China is bigger.
China is paying very close attention to what is good for China.
How about we start looking out for America, for a change.
Well, they won’t have 1.3 billion people for long, not with a fertility rate of 1.6. Trying to project populations decades into the future is pretty dubious, that I know, but some of the more credible estimates put China as having crashed to under 1 billion by 2100, and the American population at more then 500, 600 million.
If we get another four years of Obama they will!!! All the more reason to win the presidency and get a conservative majority in the house and senate.
Happiness.
Yes. Foreign exchange reserves are what other nations invest in your nation, assets, cash reserves, investments and etc. That is why the numbers are so huge. Look up China trade surpluses for the last 20 years, she invests part of her money in overseas mines, oil fields, etc. Since the price of oil, metals and food has gone up in terms of US dollars, these resources reserves increase in value and are added to China’s assets. Recently China has the largest oil company in the world and US Exxon is second.
Agreed. I was just reacting to all the pants-on-fire alarmism about China becoming the world’s largest economy. I’m all in favor of China getting affluent. We need to stop worrying about the yellow peril and get our own house in order.
Actually, I don’t think we agree. :D
But it’s a FRee country.
So we disagree.
I’m for starting the trade war tomorrow.
But a broad range of assumptions would have to be true in order for the two countries to reach those predictions. Alot can happen in 88 years.
One assumption, is that the one child policy in China will stay in effect for the remainder of the century. And US immigration will remain robust for the rest of this century.
But these population multiples, i.e., as in the case of the US doubling by the end of the century, would have to happen over the course of 3-4 generations. China's economic multiples, i.e., doubling her economy, can happen in less than one generation, and during some periods, triple in less than one generation.
There are many examples of inspiring stories like this. But I tend to think these are the exceptions rather than the rule. And I'm willing to bet most of the people doing the design and engineering at Learjet have college degrees in Engineering.
And the same is true at Bill Gate's Microsoft. While Bill Gates never finished college, his company is full of the best and brightest who came from the best institutions in America and across the world.
And while there are the Bill Lear's, there are also many like Andy Groves, who got his Ph.D in Engineering and co-founded Intel Corp.
People who haven't gone to college can be innovative, but I think its stretch to say they are MORE innovative. Most marketable patents are developed in corporations and college institutions. And they are produced by people with advanced college degrees.
I do agree, that some innovations are best done outside of a college setting. Bill Ruger, for example, did something innovative by building gun parts out of cast steel instead of forged steel. But I hardly think that is comparable, in the grand scheme of things, to tens of thousands of engineers developing a smaller and smaller CPU at Intel.
There is a magazine, which name escapes my recall right now, which is dedicated to useful inventions created by farmers. Yes, you read that correctly - farmers. No doubt a few of those fellows have been to college, but that is besides the point I was trying to make.
A cultural and social environment must be conducive to inventiveness for inventions to occurr regularly. A culture and society where individuality is discouraged to the point of criminal punishment is going to find it difficult to conjure innovation.
Our colleges and universities no longer encourage exchanges of ideas as only “preapproved” ideas are allowed on campuses.
I’m betting against it.
But I do not believe colleges, corporation, etc. are so stifling or oppressive that the average "Joe" in a garage is more inventive than the collective power of Universities and Corporations.
Sure, in the back woods and the nooks and cranny's of America's communities, are people willing try new ideas, tinker with new things, etc. Kind of like that cable TV show, "Sons of Guns" where you have a group of guys in a shop who are quite clever redesigning existing small arms. Or NASCAR shops through out America who design innovative ideas to make a car go quicker, etc. and it's pit crews finding new ways to change tires during the race.
But I hardly think those things compare to the army of engineers and scientists who are involved in developing the F-35 or an army of engineers and scientists who develop brand new vehicles and mass produce it on an automated production line.
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