Sean O'Grady: China will overtake America, the only question is when
Digg
del.icio.us
Facebook
Reddit
Google
Stumble Upon
Fark
Newsvine
YahooBuzz
Bebo
Twitter
Independent Minds
Few things would be more powerfully symbolic of the shift in the balance of global economic power than to have oil traded in the Chinese renminbi rather than the American dollar.
True, no one is going to price a barrel of West Texas Intermediate Crude in renminbi tomorrow. But you can see how that could change. Oil is traded in dollars for economic reasons – not sentimental ones. The oil business pretty much started in the US (vividly portrayed in the film There Will be Blood), the giant oil companies are still mostly American, and the US has long been the world's largest consumer, importer and one of the largest producers of oil. The presidency of George W Bush offered ample evidence of the intimate connections between politics and oil. And the dollar is easily the most traded currency in the world. As such, it makes sense to trade oil in dollars.
Yet the financial tectonic plates are shifting – fast. Yesterday the president of the World Bank, Robert Zoellick, articulated what must be weighing on the minds of many Western policy-makers. A legacy of the current crisis "may be a recognition of changed economic power relations". In other words, the recession has accelerated the rise of China. The brutal truth is that for most of the next decade China's economy will grow by more than 10 per cent a year; America's by less than 2 per cent. China will soon be the world's largest economy, and largest creditor nation, a position enjoyed by a pre-eminent America in the 1950s. China will also be the largest consumer of oil, which will help push trading in it and other commodities towards a "basket" of currencies.
Now America is the world's greatest debtor, she can no longer sustain her role as protector of the world's only reserve currency in the long term. The humbling of Wall Street was proof that the American system was not invincible. Suddenly, a G20 embracing China, India and the other emerging powers is the only forum that matters. China has helped bail out our banks. Spats with the Americans and Europeans are set to grow more bitter. Yesterday the head of the IMF, Dominique Strauss-Kahn and the president of the European Central Bank, Jean-Claude Trichet, resumed their attack on the value of the yuan. Next will come an increasing US resentment at the vast debts built up with China, and, in turn, Chinese nervousness about their long-term worth.
And that is the paradox. China holds approaching $3 trillion in dollar assets, so she cannot afford to see the dollar collapse. Longer term, China does want to become less reliant on the dollar as a place to keep its savings. America needs China to buy her Treasury bills; and China needs America to buy her exports. They are like two drunken giants leaning on each other. Yet a sobering reckoning of some sorts seems inevitable; and it is difficult to see how both can be winners.
View all comments that have been posted about this article.
Offensive or abusive comments will be removed and your IP logged and may be used to prevent further submission. In submitting a comment to the site, you agree to be bound by the Independent Minds Terms of Service.
- Print Article
- Email Article
-
Click here for copyright permissions
Copyright 2009 Independent News and Media Limited
Comments
No, she's not. Many nations are in far greater debt relative to their economy, including most developed nations.
"she can no longer sustain her role as protector of the world's only reserve currency in the long term."
Yes, she can. She's been doing it on a mere 3-5% of GDP for quite some time.
"The brutal truth is that for most of the next decade China's economy will grow by more than 10 per cent a year"
Only under the most optimistic of projections.
"America's by less than 2 per cent."
Only under the most pessimistic of projections. See a theme running here?
"China will soon be the world's largest economy"
Not for several decades, if at all.
"America needs China to buy her Treasury bills"
China has been a distant third to Japanese and UK treasury purchases throughout the year. U.S. consumers have stepped in to purchase as much or more than China this year as well. The necessity of continued Chinese buying is a meme.
No, she's not. Many nations are in far greater debt relative to their economy, including most developed nations.
- False! In absolute terms, America has borrowed more than it earn more than all countries in the world.
"she can no longer sustain her role as protector of the world's only reserve currency in the long term."
Yes, she can. She's been doing it on a mere 3-5% of GDP for quite some time.
- ??? America will not be able to sustain its position because of the lost of confidence in the US$ (abuse of its position to gain economical advantage)
"The brutal truth is that for most of the next decade China's economy will grow by more than 10 per cent a year"
Only under the most optimistic of projections.
- agreed
"America's by less than 2 per cent."
Only under the most pessimistic of projections. See a theme running here?
"China will soon be the world's largest economy"
Not for several decades, if at all.
- I believe that this would happen sooner than you think
"America needs China to buy her Treasury bills"
China has been a distant third to Japanese and UK treasury purchases throughout the year. U.S. consumers have stepped in to purchase as much or more than China this year as well. The necessity of continued Chinese buying is a meme.
- China is the largest creditor of America - hence the statement. If they are not buying much this year it would be because they have come to realise that the US$ are soon going down the drain. In few years time it would be as worthless/usefull as toilet rows.
Only under the most optimistic of projections.
Tell that to Britain's biggest bank (soon to be Chinese):
Yes! The whole world likes Obama, but they do not respect, nor fear him. I would much rather have a president that is hated yet instills a fear in rogue nations like Iran who are becoming awfully boisterous since Obama has taken the reigns.
Yes we need health care reform, and no we don't need any kind of government run health care. But this is not the time for spending another trillion dollars. Obama is not focused on what we need as a nation. We need to drill for oil and screw the environmentalists who are running this country. This alone will be able to pay off much of our debt in 20 to 30 years.
We need to cut taxes and not increase taxes. We need to support our kids in Afghanistan and stop debating what we should be doing while 10 more of our kids died today. I said it all along during the campaign, if Obama is elected he is going to run this country into the ground along with Pelosi and Reid.
WAKE UP AMERICA! We must begin to stop this guy who has said himself that he doesn't like our Constitution. We must put pressure on all our Congressmen to just stand up and say "NO!" to all this liberal crap or they will be out of jobs!!
As before, I'll point out that I don't care about Obama: I don't think he's the messiah.
However, it is my belief - not founded on any actual empirical knowledge personally gained, admittedly - that he is far more level headed and intelligent than the previous US president.
If a nation doesn't fear Obama then fine, just so long as they have the common sense to respect him.
And seriously, do you think George Bush was "feared"? Perhaps, but only in the way a drunk lunatic with half a smashed bottle is feared... How great was it to have a president who was roundly mocked? And that might have been largely due to his poor skills of public speaking, but I think there was probably more to it than that...
You definitely scared me... who are you? nazi? It is one of the most ridiculous but popular logic I often heard. This is especially disgusting when it is come from the so-called Christian nation. How many Iranians do you personally know? What gives the right of the US to state Iran as a rogue nation when half of her citizens can't even identify it on the map? How about we just go to Iran and eliminate every one there? If you think it is too cruel and can't bear with this idea, I guess we should stop instilling this kinds of nonsense and hatred to people of other nations.
The most disturbing policy of Obama isn't the health reform or tax increase. It is the tire tariff and potential protectionism. If US doesn't want to screw itself big time, the last thing it wants to do start a trade war to the world.
Please, allow me to introduce you to - The Paragraph.
You lost me (and I presume others) around the third line.
I'm a registered independent. I haven't voted for a Republican since Bush Sr. I have a Masters in Political Science and a PhD in economics.
I can assure you, if someone isn't paying attention to reality here, it's not me. That you agree with these articles and they 'make sense' to you does not mean they, or you, are correct.
China for a start by denying its workers basic humans stops them pricing (through independent unions) their Labour to reflect its economic value. It also means Chinese workers are forced to hypersave because their government lacks the motivation to instigate proper social security.
In the long run, either China becomes a democracy or growth in China will collapse as Western politicians demand tariffs that stop local jobs being exported outside the democratic world.
Drill baby drill, yeah sure, like there is an ocean of oil underground. Wishfull thinking does not reality make.
I find it pathetically sad that so many people (such as you) seem to continue to view the world in black and white. If I disagree with this article, well, then certainly I am a "Bushie"; it really is intellectually depressing.
And if you believe the position America is in today economically and fiscally is because of Bush, it's even sadder. These are issues that have been discussed at length in the economics community for 30 to 40 years. The forces and imbalances contributing to the current state of the dollar specifically built throughout the mid-1990s onward. If you really want to understand a problem and support a solution, it would be an intelligent act to set aside ideologue behavior and become an objective consumer of knowledge.
What finally did us in (I hope just temporarily) were the lack of bank regulation, financial oversight, and the unfettered greed of the operators. Hey, the market will regulate itself, right?. Granted, the Bush admin was not the only culprit in this saga, but if you trumpet out loud that regulation is bad, it stands to reason that the "market" will take full advantage of this license, excesses included.
I think of reducing the budget deficit like trying to stop an ocean liner. It will be going in the wrong direction for quite awhile before it can be halted. This time it just may take more that 2 Democratic presidential terms.
Here is the real distribution of US treasury Bills. China is the number one FOREIGN owner of US Treasuries:
1. Federal Reserve and US Intragovernmental Holdings US $4.8 TRILLION
2. Mutual Funds US $769 Billion
3. China (Mainland) US $740 Billion
4. Japan US $635 Billion
5. US State and Local Governments US $550 Billion
6. US Pension Funds (401K's and IRA's Individual Retirement Accounts) US $456 Billion
7. Others (individuals, government-sponsored enterprises, brokers and dealers, bank personal trusts, estates, corporate and non-corporate businesses) US $413 Billion
8. Oil Exporters US $186 Billion
9. Caribbean Banking Centers US $176 Billion
10. Brazil US $158 Billion
11. Insurance Companies US $126 Billion
12. UK US $124 Billion
13. Russia US $119 Billion
14. Depository Institutions (commercial banks, savings banks
and credit unions) US $107 Billion
15. Luxembourg US $87 Billion
These figures were good up to March of this year and are sourced from the US Treasury, US Federal Reserve & US Office of Debt Management. They will not fit the line of the British papers and definitely not that of the Independent, therefore I don't expect this to be posted. If it is, good for them for having the balls to prove me wrong.
External Debt as % of GDP External Debt Per Capita Gross External Debt(Q4 2008)
1. Ireland 811% $549,819 $2.311 trillion
2. UK 336% $153,616 $9.388 trillion
3. Belgium 327% $155,362 $1.618 trillion
4. Hong Kong 295% $93,539 $659.93 BILLION
5. Netherlands 268% $145,959 $2.439 trillion
6. Switzerland 264% $171,478 $1.304 trillion
7. Austria 191% $100,787 $827.49 BILLION
8. France 168% $78,070 $5.001 trillion
9. Denmark 159% $107,026 $588.7 BILLION
10. Germany (Tied) 137.5% $63,767 $5.25 trillion
10. Spain (Tied) 137.5% $57,091 $2.313 trillion
12. Sweden 129% $73,245 $663.58 BILLION
13. Finland 116% $62,579 $328.56 BILLION
14. Norway 114% $118,353 $551.59 BILLION
15. USA 95.09% $44,358 $13.627 trillion
External Debt information from The World Bank
Everyone should be wary of figures because they are easily manipulated and percentages by themselves can never tell the story. Do your own research and stop buying the China story. China is a paper tiger that will blow over with the slightest shift in policy by the US. The Chinese Government controls the proceeds from its economy which is why its citizens cannot drive their economy. Ask yourselves this question, why have we not been rescued by China? Simple answer, the American consumer drives the world economy. Ever stopped to consider what would happen if the US withdrew MFN (Most Favored Nation) status for China. Sure the US corporation will be hurt, but China will be demolished. I'd like a list of the innovative and inventive Chinese products that the world desires. I am not speaking of products manufactured for US corporations with cheap labor. That can be shifted from country to country. By the way Lenovo is originally the IBM Thinkpad and still does most R&D in North Carolina.
"American Debt" or "America Consumer" drives the economy? Who is the winner? Will there be a winner? Who had the last Cheers?
You may be correct in the long-term, but China still has an awfuly long way to go before it can come near matching, let alone overtaking, the principal measure by which US economic power is rated: Annual GDP.
The latest GDP figures released by the World Bank in September show that China, with GDP of 3,860,039 billion dollars, is placed third in the league table behind Japan at 4,909,272 billion, and the U.S.A. at a staggering 14,204,322 billion. The U.S.A. is still streets ahead of the nearest competitor. Germany, France and Britain combined, let alone all the other countries in the E.U., have a GDP almost three times that of China.
So the supposed economic power of China is clearly overstated. Add to that the long-term uncertain future of a country riven with dissenting ethnic minorities, experiencing huge tensions between the urban and city areas, massive employment tensions, suppression of genuine democratic expression which must inevitably have severe consequences sooner or later, a currency being artificially held down by central diktat, massive endemic corruption in the only political party allowed and in the armed forces, and it becomes clear that things are not quite as rosy as you seem to believe.
Based on 60 trillion dollars of unpayable bad debts.
China has *already* overtaken America, partnered by Russia & France.
So it's BYE-BYE MISS AMERICAN PIE, your levy's run dry, and this'll be the day that you die.
Basis of past 4 cycle partten on the rate of $ being printed since 1934, 2020 will make the end
The chinese saying
"Feng Shui make it cycle"
& Conspiracy •The demise of the dollar
"When the tree fall the monkey scatter"
It is much more likely that the US and China (who understand each other quite well), will form a cosy condominium to jointly run the world. The US is pragmatic above everything, and "Europe" is just a silly joke.
I love the the comment about pragmatism; so are the Chinese and equaly as ruthless as yourselves when someone become more of a liability than an asset.
For those who are not aware, the story on which all of these pieces are predicated has been thoroughly debunked, and was done so immediately by ALL of the alleged acting states involved.
Now the situation is that to compete US manufacturers will have to use that Friedman-Thatcherite expression "price itself in" to the market. This has clearly not been done.
The problem is therefore a structural one. The Chinese have a low cost structure. Loads of cheap labour. They have undergone a land reform process so their market is less asymmetrical in terms of buyers and sellers of a key factor of production than in the West. Western workers require high wages because they face high rental prices.
Western businesses financial statements will show a different cost structure to those of Chinese companies because of high rents and high wage costs. They cannot compete because of structural asymmetry of its markets because of its accumulative assumptions.
This is an irony because in terms of basic factors of production, the US has abundant spare capacity in terms of space and land if only this could be more evenly distributed to increase supply and competition. This is a latent competitive advantage that the US has not utilised.
China's competitive strength lies in its population. This allows it to produce cheaply and provides a ready internal market which can be used to average out its overheads.
The US has allowed capitalism and the drive to gain market power to choke off competitive enterprise. This situation has to be reset. China is thriving because you can see that everyone believes that if they try hard they can succeed. Where have you heard that before ?
Firozali A. Mulla
I agree with this For far to long the USA and the UK have been far to complacent with regards not only the oil industry but also the semiconductor / electronics Industry Instead of investing heavily in semiconductor research as we should have don a long time ago Britain sold off the likes of Phillips semiconductors "The very place where cold light was born " Siemens semiconductors The massive semiconductor plant out side what was STC' s and Rank tubes etc etc reason best known to the UK
Now of course not taking notice of the eastern block together with china and Russia now renown for thermionic tube manufacture and China / Japan / Taiwan for semiconductor manufacture embedded devices and LSI
We are now facing up to the fact that memory chips Cpu's 8 bit 16 bit are largely produced by China / Taiwan / Russia And the USA
They supplied the market at prices that we couldn’t even afford to sell them for and so China has sat back and let the west get complacent and full of themselves
China have let the UK think that they didn’t need to invest in this market Now china and the eastern block can put their prices up and up and up Why because we don’t manufacture IC's any more and again we waited for this to happen
All of us worked out exactly how they would do this and saw this coming for years and years too
http://shamao.typepad.com
Today,many refer to Japan as a regional economic powerhouse.
However, there is a way out for the U.S. yet, and that is to settle debts to China with real assets: property, land, resources, stocks in businesses, scholarships at American universities, etc. The U.S. might just end up looking quite a bit more Asian, but that might not be such a bad thing... especially if a world war gets averted.
Actually, I foresee more of a quid pro quo in collaborative arrangements between countries in settling debts that are negotiated to adjust imbalances -- and that the U.S. could be a major winner by forgiving other debts as their debts are forgiven -- kind of like the older version of the Lord's prayer.
What we're seeing is a new phenomena in geopolitical economics: a rapidly forming Asian hemisphere acting collaboratively to redress the dominance of Western countries and achieve more of a balance in power between developing countries and the Western developed countries.
The East Asian Summit (which has meetings following ASEAN conferences), includes not only the ASEAN countries, plus three (China, Japan, S. Korea), but also Russia, India, New Zealand and Australia. China and Japan have taken a lead in adding their heft to negotiating economic and security arrangements with this strengthening coalition.
And they're going off the dollar, which has been the major global currency of the world since Bretton Woods after WWII. Now that's all changing. The BRIC countries (Brazil, Russia, India and China) provide a cornerstone to this Asian sphere which will make it easy for Latin American countries to follow their lead. The OPEC countries will no doubt go off the dollar as well, as has already started to happen.
A few days ago, China announced that it was selling bonds denominated in yuan in Hong Kong. This was done rather quietly, without much fanfare, but it is nevertheless carrying out one of the first steps in their plan to move away from the dollar.
Many countries have already moved away from the treacherous U.S. dollar with bilateral trade swaps.
Trade in dollars or else! Well the fraudulent wars we are already in are bancrupting us already and we have no more money for another one with Iran. In fact, according to "the Army Times" troops are being sent to the U.S. for civil unrest. Read "Full Spectrum Dominance" by William Engdahl to learn about the fate of the U.S. and G.B.