China’s #2! China’s #2! China’s #2!

Monday, August 16, 2010 23:10
Posted in category The Big Picture

So, the word is out.  China is #2, Numero Dos, 第二 … and EVERYONE is talking about it. Some are even saying China will be King of the hill by 2020

Officially word came down with the Japanese Cabinet’s announced their economy put out 1.288 trillion USD, a few points below the 1.337 trillion China had reported earlier. Never mind that Japan is 10x as productive, or that the Japanese economy has essentially been limping along since the early 90s, or that this is not a annual figure (yet)… the law of numbers (and China’s 1.4 billion people) sealed the deal.

What does all this mean, and what should we make of this milestone?  It was something I was asked a few hours back by hometown (St Louis) radio and TV reporter Charles Jaco as part of his roundup of the event where he asked my thoughts on the following issues:

  1. Everyone looks @ the Chinese economy as this thundering monolith. But do they have the same problems we do, i.e.–high unemployment, social dislocation, etc?.
  2. Everyone often says it’s Chinese consumption that will pull us out of this economic mess. But you indicated to me that’s false and that any cure will have to come from the US, not China. How come

Keeping in mind that St Louis is about as middle country as you can find it in the U.S, that the cit has a LONG history of industry and trade, and that they are in the final stages of a potentially large logistics hub deal with China, the questions were laced with a few angles… (1) What does China being #2 mean for the world (2) is China real and (3) should Americans really be looking to China to save them.

In answering these questions, and keeping in mind I had 2 minutes to dive into these questions, I felt it important (and I still feel it important) to provide a little context.  that, while China had certainly hit a long sought after target, and was certainly looking forward to being king of the hill, that China’s economy was still a very lopsided (as the recent Caijing article points out)… that there is more than a single “China” that needs to be considered.  And that the economy, regardless of how large it has become and the targets it has blown through, is very very fragile… as proven by the fact that China fears any growth below 8% would lead to instability (economic and political)., whereas the other major economies of the world have survived negative growth periods over the last 24 months.

Diving a bit further, and getting into the hurdles that China faces, I started by addressing the misconceptions of what the average “Chinese consumer” is, and where China’s savings are located… that while China, and the Chinese, may have high savings rates, the bulk of the savings were actually held by large state owned enterprises.. and that going forward, China would have to address some very large systemic issues (education, health care, and assets) as well.

On the second question, this was a bit easier as I largely have felt that the entire “China saving the world” story was a bit overbuilt.  Sure, China’s wealth and support of other currencies has been invaluable over the last 24 months, but unless China is going to go on a SUSTAINED overseas spending spree, it would be hard to see how China would save the American economy.  That the American economy, in St Louis, was suffering from local, state, and national issues that would have to be resolved outside of the global economic market place.

So, what does China being #2 mean?  At this point, it essentially is confirming discussions that have been going on in the past.  that China’s size was going to drive the data points forward, but that these numbers need to be viewed in a separate context than just a Country vs. China basis.

That, it is (and will be important) to look at China by itself and understand what the numbers mean for the country.

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4 Responses to “China’s #2! China’s #2! China’s #2!”

  1. Tim says:

    August 17th, 2010 at 12:35 am

    Rich,

    The reliability of these numbers coming out of China are always suspect, and are often inflated when it comes to GPD. Apparently there is real concern that what is being reported at the provincial level is not adding up to NBSC’s numbers.

    That is not the main issue here really but rather what does it mean to be #2? I’m just not seeing the significance. China has serious income disparity issues that when you start looking at real incomes of the majority of people this number’s significance begins to pale. When China’s per capita GDP reaches the top 40 and this number resembles real incomes than that would be something to celebrate!

  2. @mark_e_evans says:

    August 17th, 2010 at 5:07 pm

    NPR Planet Money has a good discussion (if a bit naive about China) in their podcast today:
    http://www.npr.org/blogs/money/2010/08/17/129258308/the-tuesday-podcast-we-re-number-two

  3. ian channing says:

    August 19th, 2010 at 5:31 am

    Reaction from Japan on this: Indifference. It made more headlines in the west than in Japan, where it has long been expected, and where the ambition to be top dog in anything died in about 1993. What is surprising, given the huge Chinese tourist influx and the universal dependence of major manufacturers on the China market now, is the hostility most Japanese still feel for China. They don’t want them to succeed, and do not even want to communicate with them (almost no competent Mandarin speakers at all). Japan is not really preparing for the rise of China. Instead, it is increasingly retreating into itself. It’s pretty sad.

  4. Ashley Hall says:

    August 20th, 2010 at 9:45 am

    I agree with Tim on this post. We have to evaluate what the ranking actually means here. How significant is it that their economy put out $1.337 trillion? If they cannot maintain a growth rate of 8%, is their economy going to be significantly impacted?

    Thanks for sharing your insights on the matter, Rich.

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