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China set to overtake Britain

The Chinese economy is set to be bigger in GDP terms than that of Britain by the end of this year, according to this report. Of course, raw statistics, such as aggregate economic numbers, do not tell the entire story, such as the degree of upward mobility, quality of life, extent of personal opportunity and so forth, but even so, China’s growth remains for me the most compelling economic story of the past year. It is interesting to speculate just what the world economy would be like without the dynamo of China.

What remains to be seen, of course, is whether China’s economic dynamism is eventually reflected in greater individual liberty. The jury is well and truly out on that question. Meanwhile, this article in Forbes is worth a look.

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37 comments to China set to overtake Britain

  • Of course they are,they don’t have a socialist government like we do.

  • For lack of a more eloquent phrase, maybe this will put a firework up Gordon Brown’s arse.

    “China’s growth remains for me the most compelling economic story of the past year”

    I would say it has been the most compelling story of the past forty years. However I do not think that China will be the first to overtake the US economically. India has the common law, established property rights, better education, the English language, democracy, individual rights and probably a few other things my sleep deprived brain can’t remember right now.

    “What remains to be seen, of course, is whether China’s economic dynamism is eventually reflected in greater individual liberty”

    I don’t think there is a question about it. In order to continue growing, China must educate their population, develop a culture that allows entrpreneurs to challenge orthodoxy, allow the dissemination of good ideas, develop clear intellectual property rights and build a middle class. They cannot do this without moving towards individual liberty and democracy.

    I do not think they could even reverse the process now, it has already gone too far and the only thing preventing a counter-communist revolution is the fact that life is good and getting better.

  • Verity

    Mark, I also believe India will be the first to overtake the United States economically, for all the reasons you state. I would add one more. The Indians are creative thinkers. The Chinese not so much. They prefer to go along established patterns. India is a race that produces a large number of physicists – which I believe indicates a population by and large unafraid to confront new ideas. In fact, they love new ideas. When a new phrase or buzzword is invented in Britain, the US or Oz, it is already being used in The Times of India the next day. And, as you say, they have a secure law of contracts, which makes them a commercially friendly environment.

    And, as I have argued over at Albion’s Seedlings time after time, they have the ineluctable advantage of belonging to the Anglosphere.

  • That’s assuming their statistics aren’t just inflated. They may not be commies anymore, but come on guys — huuuuuge grains of salt here.

  • Considering China has like 20 times the population, the fact their GDP is only just now passing the UK doesn’t exactly cause much concern for me…

  • MarkE

    Absolute GDP may be interesting to politicians showing off (“Mine’s bigger than yours”), but the people of an economy should be more interested in per capita GDP. In those terms both India and China have a long way to go, but I would never bet against either of them covering the distance quicker than we expect. Both economies will also benefit from the EU’s determined move backwards (mainly through excessive and inappropriate regulation) at the same time as they move forwards (“hey, guys, er, can we meet you halfway on this?”)

  • Ted

    Let’s not get carried away about China. It isn’t as big as people think in economic terms and still has a great deal of internal strife to overcome before it emerges as a genuine player. Also keep in mind that India’s economy is based on services, while China’s is manufacturing.

    As JONATHAN WOETZEL, Director, McKinsey & Co recently wrote:
    “A number of somewhat immoderate viewpoints on the subject of China are in vogue nowadays: China is the center of the world; China’s economy is going to
    take over the world; China is the world’s manufacturing workshop; China is the
    world’s largest economy. What’s needed for context on a discussion about China, however, is a reality
    check. China has a GDP roughly the size of Italy’s. China’s GDP by the year 2010 will be roughly the size of Germany’s. Between now and 2010, the Chinese
    economy will grow by roughly the size of Spain’s economy,. and it will continue to do so every 5 or 6 years. China is not a small economy but, on the other hand, China is certainly not the size of the United States in economic terms. Many of those who are interested say that China won’t pass the United States until roughly 2040, which is within our lifetime but perhaps not within the span of our careers.”

    Note the last sentence assumes, among others that (i) no breakdown in centralised authority (ii) no competition from other manufacturing blocs (iii) that the rate of growth in leading nations like the US stays constant.

  • The Left loves to say “Watch China” because they like to scare us. It’s a load of bull in a China shop if you ask me.

  • Chris Harper

    I go along with both Mark and Ted, but with provisoes.

    China is heading towards being an economic disaster area.

    1. Its demographics are a complete mess. Its age distribution is heading towards the shape of an inverted pyramid; it is likely that in the near future each worker will be supporting three, four or even five unproductive members of society, parents, grand parents and children.

    2, Unless you work for one of the old state owned industries there is no social security. The Chinese squirrel away a lot of their income and, because of the limited savings opportunities a communist society offers, most of this money is in the big four banks. Trillions and trillions of yuan.

    The only reason state owned industry is not almost universally bankrupt is because the Chinese Government has ‘requested’ these banks to provide loans to the companies, loans which are neither services nor repaid. In fact, of the banks total loan accounts about 50% are non performing.

    I repeat – 50% of the banks loans are non performing. This is as opposed to about 0.5% for western banks.

    Not only are the Chinese demographics a disaster but the banking system is bankrupt, although no one is prepared to admit it. When they do admit it hundreds of millions of hard working fascist minded (well, they were raised in a communist state after all) citizens will go absolutely apeshit.

    What is going to happen when one or the other of these problems surfaces? What will happen if they both emerge concurrently?

    Ladies and gentlemen, I am terrified at the thought.

  • Chris Harper

    India, on the other hand, is a pretty normal type country. Reasonable age distribution, rational economy, sensible laws.

    If you are looking for a solid long term investment? Buy India.

    If you want a solid overview of this stuff then poke abound on James Watertons (a not infrequent commentator here) site.

    Try –
    http://itneededtobesaid.blogspot.com/2005/07/china-chimera.html
    http://itneededtobesaid.blogspot.com/2005/08/future-is-coloured-saffron.html

  • Chris Harper

    Re the chinese demographic problem – Because boys are considered more valuable than girls the current boy/girl birth ratio is about 117/100.

    I would thing a good solid long term investment would be a futures market in Chinese girls.

    Can you conceive just how valuable a commodity they will become?

  • The Wobbly Guy

    However, it must be noted that India is still hugely and reflexively socialist… through no real fault of their own, and still held somewhat by Gandhi’s ideas.

    Their demographics and the impending population explosion also doesn’t bode well, considering that they are going to have more people than even China in an even smaller land area. And there is the bureaucratic shortsightedness in India.

    Both China nor India have huge problems down the line, and the mind shudders to think of the consequences if they both blow up or implode at the same time.

    I’ve found a good extract on this India and China issue.
    http://indianeconomy.org/2005/12/18/lee-kuan-yew-on-india-part-1/

  • Johnathan Pearce

    On the demographic issue, the situation is just as bad in Japan, Italy, and parts of Europe, so I am not quite so convinced of the idea that China is headed for disaster around the corner. In any event, a lot is already being done to rectify problems with their banks, although there remains a serious problem.

  • China, with 1 billion people, is overtaking Britain, with 60 million. Sorry but the real story here is just how fucked up China is and how monumentally evil the Chinese state is to have kept its people in such abject poverty for so long.

  • Johnathan Pearce

    Perry, indeed.

  • pommygranate

    Probably the greatest single advert for the destructiveness of socialism lies in the contrast between the abject poverty of China and the resourcefulness and entrepreneurism of emigrant Chinese communities.

  • Chris Harper

    Perry,

    I couldn’t agree more. Communism is just plain fucking evil.

    Jonathan,

    The demographic problem is an order of magnitude worse in China than elsewhere. And in addition, in China it is governmentally contrived, not a non coerced choice as it is in those other places you mention.

    China is, in the medium/long term, in deep deep shit.

  • Chris Harper

    Re. dealing with the Chinese banking problem,

    Can you imagine the British government recapitalising Natwest, Barclays, HSBC, Lloyds, Royal Bank of Scotland and the top dozen building societies (sorry, new generation banks)? Simultaneously?

    Where would it get the fucking money?

  • Johnathan Pearce

    Chris, calm down! I have been covering the goings on at China for some time and can tell you that the banking problems there, though big, are not of the sort of magnitude you seem to think.

    As for the population issue, that is clearly a major headache and to an extent, state-induced due to the daft one-child policy. Which only proves that a high-growth, high-savings policy is necessary to fix the problem, which seems to be happening rather fast in China, in contrast to places like Italy, where a declining birthrate has also coincided with weak growth.

    China is going to have its problems but I don’t forsee the sort of massive disaster that you do.

  • Verity

    I agree that India got the poison of socialism injected into the body politic first by Mohanandas Gandhi, then Nehru, then his daughter Indira Gandhi, but Indians are energetic and entrepreneurial and they’re coming out of reflexive socialism very fast. The place is full of shopping malls, there’s a middle class of 500m people busy buying things and going on holidays abroad. Their workforce is well educated. And Indians are imaginative and creative thinkers, whereas the Chinese, by and large, are not.

    India’s going to gallop ahead way faster than China. It is the only country that stands a chance of challenging the United States. (Not that I think the US should be challenged, but we are talking in these terms for reference.) The rupee will become a hard currency well in advance of the yuan.

    I just wish they would allow foreigners to buy property there.

  • Julian Morrison

    Perry: the counter-view to that is: they’ve got two hands and one leg tied behind their back, and they’re still out-running us by dint of numbers and sheer effort. Think what they could do in a free country!

  • Chris Harper

    Johnathan, ok, maybe I came on a bit strong. Just get a bit annoyed by the China is growing, the sky is falling/we will all be made rich, type of over statement. The Chinese are human beings; they will muddle through, just like the rest of us.

    I am interested by the geopolitical issues tho.

    I can see the major mid 21C political grouping as being the US, the UK (if free of the EU nonsense), India, Japan, Korea and Australia acting as a counterbalance to contain an assertive China.

    Other countries, SE Asia, bits of Europe, may be part of either side or on a side of their own. Either way, fundamentally Europe won’t matter in power political terms, any more than South America does now.

    Mid 21C the USA will still be the worlds single largest economy, although this won’t be true by end 21C.

    Regardless, for the forseeable future the US will remain the worlds ideas factory, just in the nature of its culture.

  • Verity

    Julian Morrison says: Think what they could do in a free country!
    Yeah, but they’re not.

    Chris Harper – I can see the major mid 21C political grouping as being the US, the UK (if free of the EU nonsense), India, Japan, Korea and Australia acting as a counterbalance to contain an assertive China.

    If by “assertive”, you militarily assertive, I don’t think so. I believe they realise that the world is their customer.

  • Chris Harper

    Verity,

    Not militarilary assertive, but politically. This covers everything.

    I don’t expect to see China invading Belize or Tonga or Thailand, but I do expect them try to get their way in world affairs, and they won’t be backwards in being forwards either.

    And why should we expect anything else? It is only the EU and the UN types, the tranzies, who would expect otherwise, and these guys are not dominant in China yet.

  • Verity

    Yes, Chris Harper, I agree that they will be politically assertive. They will try to get their way, but then, which country doesn’t? France? Only Britain keels over when someone says “Boo!”

    I don’t know what pressure China could put on the rest of the world to get its way. It has nothing to bring to the negotiating table yet.

  • Chris Harper

    I don’t know what pressure China could put on the rest of the world to get its way

    Easy.

    Money.

    Same thing as the US.

    Money and everything that buys, Aid, military assistance, commercial favours, commercial threats, bribed politicians, tranzi pay packets.

    If Chinas economic statistics are accurate (they aren’t, but they will get better) and growth continues at the current rate (it won’t), then the Chinese economy will equal the US in size by mid 21C. Of course, with four (or five) times the population of the US the average Chinese will only be one quarter as rich as the average US resident but Chinese commercial interests and the govmint will still have lots of dosh to slosh. And they will.

  • Verity

    China doesn’t have enough money to buy any influence anywhere that counts.

  • Daveon

    China doesn’t have enough money to buy any influence anywhere that counts.

    ???

    Apart from their ability to bring the US to it’s knees through a foreign exchange crisis the like of which we’ve never seen before?

    That money?

    My money is on India too for all the reasons given; English, skills, general population mix. But China is pretty damn dangerous.

  • Verity

    Why would they want to do that? The US is probably China’s biggest customer.

    It’s not just their command of English, their high education standards and their skills that will power India ahead, but they have contract law. Very important. A foreign investor could bring a civil case against an Indian company in India and get an impartial hearing. Conducted in English. And the court’s decision would be enforced.

    India also has a powerful and disciplined military which is capable of interacting with other militaries in the Anglosphere

  • Daveon

    Why would they want to do that? The US is probably China’s biggest customer.

    And???

    People were claiming in 1913 that the distruption in global trade caused by a major European War would be too severe for anybody to consider doing anything dumb. Didn’t stop them.

    IIRC we didn’t get back to pre-WW1 levels of trade as a percentage of global GDP until the 1990s – that’s how seriously the world economy goot screwed by 1914 and the aftermath.

    There are plenty of strategic and economic reasons why it would be in China’s interest to force a massive devaluation of the dollar.

  • Ted

    Daveon

    Get a grip, mate. China is a small-medium economic power that is growing fast. This is a good thing, as it intertwines them into the western capitalist system. Their growth is dependant on maintaining the capitalist enterprise, opening their markets and creating wealth -so they have no interest in doing anything to undermine their own interests. However, it will gradually start to increase internal conflict with the central party.

    Devaluing the dollar would be a distater for China. Suddenly their products and labour, measured in yuan, would become too expensive. Additionally, their major consumer market, the US, would be unable to purchase their product.

    China is at best an emerging threat, but could also be a useful partner. The more that country moves toward open markets, capitalism, rule of law etc, the less of a threat it will be. No, I would rather worry about a group of unelected jihadists with a nuke – Iran – than China right now.

  • The Wobbly Guy

    LKY’s overall analysis of India doesn’t sound too optimistic though. Their service sector is big, but their manufacturing is comparatively puny. And a big country like India needs the manufacturing sector to provide jobs, or else the IT rich-uneducated poor gap will only widen, with serious socio-economic consequences, the worst of which would be a revolution and a drastic reversion back to socialism in the name of equality for all.

    I simply don’t see how the service/IT sector could provide or trickle down 200 million jobs, especially when as much as a third of India’s people are uneducated, and lacking the basic tools of reading and writing that would enable them to learn on their own.

    One of the money quotes from the speech: “One former Indian Chief Justice of India’s Supreme Court has given a legal opinion in a foreign court that India’s judicial system was practically non-functional in settling commercial disputes.”

    They have frittered away much of the legacy of the British. It remains to be seen if they can catch up with or even surpass China, especially given the many infrastructure problems that could be solved easily but would not be for various, probably political, reasons.

    The smart money is still on China. But like others have said, their banking system is a ticking time bomb, and the lack of accountability in a non-democracy doesn’t exactly lead to trustworthy business practices.

  • Verity

    Wobbly – Where was LKY’s opinion of India printed, please? I would love to read it.

    So one manky former justice has given an opinion in a foreign court. They are as given to cat fights and back biting as any other sector.

    I certainly don’t think India is perfect, but in my opinion, they have the wherewithal to become an important power in – probably – around 20 years.

    I do think that bloody Mahatama Gandhi did terrible damage with his crazy, backward looking philosophy. I mean, he didn’t want the Indians to build factories! Then you got bloody Nehru with his “unaligned” movement, meaning cosying up to that dynamic capitalistic economy the USSR, and “import substitution”. Everything designed to keep India backward. Those three, including Indira, were a disaster for the newly decolonialised India.

    That’s interesting, Wobbly, about factories. I wonder why they’re not building factories … strange.

    Please tell me where you saw LKY’s opinion. I have great regard for his thinking.

  • The Wobbly Guy

    Verity-The link I provided before. Here it is again. It’s a fairly recent speech, just a month ago. The link is to a blog commentary, but the page also provides a link to the original pdf transcript. Sorry, but I can’t get the script at the bottom of the box to work.
    http://indianeconomy.org/2005/12/18/lee-kuan-yew-on-india-part-1/

    Granted, the blogger at the link placed his own spin on LKY’s words, but the raw facts that he mentioned, especially regarding infrastructural problems, cannot be ignored. And because the commenter’s indian, he has a much more intricate grasp of the situation than any of us here do, and I found his commentary very informative. I also found it interesting that the indian commentators on that site all seem resigned to the possibility that they might not catch up with China. There’s a pervasive air of defeat.

    What makes it most puzzling is that of all problems, infrastruture should be the easiest to deal with. Problems like culture and religion are the most difficult, as they pertain to people and beliefs. But roads? Power plants? What’s stopping them from building these?

    I’m beginning to worry about a vicious circle forming in certain countries: uneducated/ignorant electorates voting incompetent/damaging governments, leading to even more lack of education and ignorance through idiotic policies. The eastern europe countries and the former USSR escaped this mostly because their people, at least, could read. Funny to see how the communist governments planted the seeds for their own downfall in emphasizing free public education. I suspect future communist governments will be careful to leave that out.

    India, on the other hand, doesn’t seem to have the luxury of having a literate populace. It is stunning to learn that only over half of India’s children complete primary school education. China’s figures here

    http://www.china.org.cn/e-white/children/c-4.htm

    report a figure of 90%, though I have no idea how reliable that is.

  • Verity

    Thank you very much, Wobbly. I’ll go and read the whole thing.

    One word. You write: I also found it interesting that the indian commentators on that site all seem resigned to the possibility that they might not catch up with China. There’s a pervasive air of defeat.

    This defeatism is very typically Indian. They do it all the time. They talk each other down. When I was there, government ministers would say things like, “How can we ever move ahead with all our teeming millions?” Yes, they used that term, although in a faintly ironic way. “Oh, we’ll never get the airport built. We’re too disorganised.” It’s terribly strange, because there is no more achieving race. They’re brilliant, but they’re always going around sighing about how bad things are and despairing for the future.

    I still believe they’ll succeed faster than China. I’ll comment again, though, after I’ve been to the link you so kindly provided.

  • Verity

    Wobbly Guy – Thanks so much for that link. LKY is so brilliant he is breathtaking and he certainly did damn Nehru with faint praise, which warmed the cockles of my heart. When I read that he had been giving the Jarwarharlal Memorial lecture, my heart sank. Then the Indian blogger camed in with his comments on Nehru and it quite cheered me up. Also, that ridiculous import substitution programme. God, that crew makes me sick. Nehru’s biggest achievement, as far as I’m concerned, was having an affair with Lady Mountbatten.

    And I was absolutely shocked, shocked to read that there are 26m civil cases pending!

    Now they’ve got a Sikh prime minister, maybe they’ll move along. Think what would have happened if it was Sonia!

  • Daveon

    Ted, those are all rational arguments, but the problem is where ultra nationalism is concerned that isn’t necessarily enough.

    Assumption of enlightened self interest alone doesn’t always work. I’d certainly not like to base a foreign policy on it myself.