Decline of U.S. and Rise of China as World Largest Economy & Economic Superpower: Practical Consequences– Influence, Opportunity, Threat, Change…

China can’t be the world’s leading economic power. Too many of its people live without indoor plumbing, no mainland science researcher has won a Nobel Prize and the country has no global brands. How can a place like that be an economic superpower? ~ James Fallows

The ‘decline’ of the U.S. and the ‘rise’ of China as the world largest economy, by 2016, is the prediction of the ‘International Monetary Fund’ (IMF). That’s just five years away, which is simply incredible when you think about it, especially considering that the U.S. economy was three times as large as China’s, in real terms, just 10 years ago. However, there is a big difference between the IMF and other estimates that predict a 2020 or 2030 date for when China overtakes the U.S. economy.

According to Brett Arends; those other estimates are comparing the gross domestic product of the U. S. and China at current exchange rates. But when you analyze the two economies in terms of purchasing power parity (PPP); comparing what people earn and spend in real terms in both China and U.S., you find quite a different result. Under PPP, China’s economy will expand from $11.2 trillion to $19 trillion in 2016, while the U.S. economy will rise from $15.2 trillion to $18.8 trillion.

That would take the U.S. share of the world’s economy down to 17.7%, the lowest in modern times, while China’s would reach 18% and climbing. Although, the exact time frame may be debatable, since a lot can happen in the next few years, the end result will be the same. In terms of numbers and demographics, China will become the world’s largest economy…

According to The Economist: Over the past ten years, real GDP growth averaged 10.5% a year in China and 1.6% in America; inflation averaged 4.3% and 2.2%, respectively. Since Beijing scrapped its dollar peg in 2005, the yuan has risen by an annual average of just over 4%. Our best guess for the next decade is that annual GDP growth averages 7.75% in China and 2.5% in the U.S., inflation rates average 4% and 1.5%, and the yuan appreciates by 3% a year.

Plug in these numbers and China will overtake the U.S. in 2018. Alternatively, if China’s real growth rate slows to an average of only 5%, then (leaving the other assumptions unchanged) it would not become number one until 2021. A broader analysis by The Economist finds that China has already overtaken America on well over half of 21 different indicators, including manufacturing output, exports and fixed investment.

By 2014, for example, it could be the world’s biggest importer and have the highest retail sales. The U.S. still tops a few areas by a wider margin: Its stock market capitalisation is four times bigger than China’s, and it spends five times as much on defense. Even though China’s defense budget is growing faster; on recent growth rates the U.S. will remain larger until 2025.

In the article China Overtakes U.S. and Japan as Top Innovative Country” by National News writes:  China has become for the first time the world’s number one nation in terms of patents filed, surpassing countries with longer innovation tradition like the U. S. and Japan. The announcement was made by Thomson Reuters, which said that research shows that China has filed the largest number of patents in 2011, without providing further details.

The number of China filed patents has grown at an average of 16% every year since 2006, to about 314,000 in 2010. Current predictions indicate that China will file about 500,000 patents in 2015, while the U.S. will clock only 400,000, and Japan about 300,000. China is pushing innovation by targeting innovation in specific industries, such as; automobiles, pharmaceuticals and technology.

Domestic patent applications in China grew to nearly 73% of total applications in 2010, from 52% in 2006. Experts say that the Asian giant is trying to change the ‘Made in China’ brand into the new value-added ‘Designed in China’ brand.

In the article China Overtakes U.S. as Largest Manufacturer in the World by Sarah Falson writes:  China has overtaken the U. S. as the world’s largest manufacturing country, producing 19.8% of the world’s manufactured goods in 2010. China overtook the U.S. for the first time, delivering US$1.995 trillion worth of manufactured goods last year compared to the U.S.’s $US1.952 trillion, according to a study by IHS Global Insight.

According to ‘The West Australian’, China remained a long way behind the U.S. in terms of productivity, with U.S. workers in the manufacturing receiving more than eight times that of China’s workers doing similar jobs.In other words, the U.S. manufacturing sector is producing roughly the same amount of output in 2010 with 11.5 million workers as opposed to its Chinese counterpart with around 100 million workers.”

In the articleChina Overtakes U.S. in Smartphone Shipments by Michael Kan writes:  China will pass the U.S. to become the world’s largest smartphone market by shipments. The U.S. still remains the top smartphone market in terms of total revenue generated, driven by sales of high-end devices like Apple’s iPhone. China will need three or four years before it can surpass the U.S. by revenue. 

Two other research firms report that the U.S. is still the top smartphone market by volume, although China is not far behind. Gartner, which tracks smartphone volume by devices sold rather than shipments, said that U.S. smartphone sales reached 22.2 million units in the third quarter in 2011, ahead of China’s 21.7 million units.  Canalys said that the U.S shipped over 200,000 more smartphones than China at the end of the third quarter in 2011.

In the articleChina Overtakes U.S. in PC Shipments by Verne Kopytoff writes:  China has reached yet another milestone in its rise as a consumer of technology by becoming the biggest market for personal computers. In the second quarter, 2011, manufacturers shipped 18.5 million PCs in China compared with 17.7 million in the U. S., according to IDC.

The shift reflects China’s growing appetite for electronics and the increasing wealth of its huge population. PC shipments in the U. S. fell 4.2% in the second quarter to 17.8 million, while shipments in the Asia-Pacific region, including China, grew 13% to 30.1 million. The U. S. is expected to remain the top market for 2011 with 73.5 million PC shipments versus 72.4 million in China, IDC said. In 2012, China is expected to lead the annual ranking. “China’s lead in the PC market is a huge shift that reflects the rising fortunes of emerging markets as well as the relative stagnation of more mature regions,” said Loren Loverde, IDC.

In the article “China Overtakes U.S. Car Industry”:  For the first time in history more cars have been sold in China than in the U. S. Car analysts point out that in the U. S. there are 800 cars for 1000 people. In China the same figure is only 20 cars. For many Chinese buying a car is a big event because most of them have never had one before. It’s not just a transportation tool like in the U.S. or Europe. In China it’s still a status symbol. With a growth of over 20% per year China has the fastest-growing automobile market in the world.

In the article “China Overtakes U.S. as No. 1 in Installed Wind Power” by John Johnston writes: In 2010, China overtook the U. S. to become the country with the largest installed wind power capacity, as reported by official Xinhua News Agency. China’s total installed wind power capacity reached 41.8 Giga-watts at the end of 2010. Installed wind capacity in the U. S. increased by about 5 Giga-watts to 40.2 Giga-watts.

China increased its wind power capacity by 16 Giga-watts or a staggering 62% from 2009, according to data released by the Chinese Renewable Energy Industries Association. Chinese government initiatives have nearly doubled China’s wind power capacity every year since 2005.

In the article Reasons To Cheer When China Overtakes America by Rick Newman writes: The U. S. is starting to look like an aging, off-balance heavyweight. Developing countries like China, India, and Brazil weathered the global recession far better, and they’re now growing at two or three times the U.S. rate.

Despite massive amounts of U.S. government aid, more than half of all Americans tell Gallup that the economy is still in a recession, or a depression. Median incomes are falling, with living standards likely to follow. The dollar has drifted close to all-time lows against other major currencies.  So maybe, it will be good for the U.S. when China finally overtakes America. Here are four reasons why:

  • We need an underdog mentality: America is like the rich, dysfunctional family that lives in the ramshackle mansion at the top of the hill. We’re living off of our past and have lost the habit of working hard to earn our livelihood. We seem more fixated on amusements and trivial problems than on keeping our house in order. Falling to No. 2 might generate a common sense of purpose and give Americans something to rally around…
  • A quick descent would be better than a slow decline: We stopped being No. 1 in a lot of things some time ago… The U.S. poverty rate is close to the worst among developed nations. The education scores have been middling for years. The ‘Legatum Institute’s’ annual global prosperity index ranks the U. S. 10th. The jingoistic chant of  ‘We’re No. 1!’ is usually wishful thinking. Yet we’re still in denial about our influence around the world and our ability to control events we deem in our national interest. When the U.S. economy is no longer the world biggest, it will be an undeniable sign that decline is real…
  • It might force action on economic priorities: Despite a lot of jawboning, politicians have done virtually nothing to reduce the government’s gaping deficits or pay down America’s $14 trillion debt. There’s no sense of urgency in Washington about assuring the nation’s economic primacy. Maybe a drop in America’s economic rank would be the kind of impossible-to-ignore setback that it takes to get politicians’ attention.
  • You can be small and prosperous, too: We mistakenly think that only a big economy can be a successful one: False. In the ‘Legatum Institute’s’ prosperity index, for instance, Norway, Denmark, and Finland rank at the top, followed by a bunch of other countries with far smaller economies than the U. S.  The trick is aligning your national ambitions with your capabilities, which is where the U. S. has fallen out of sync.

China has been the world’s fastest growing economy for more than three decades, growing 17-fold in real (inflation-adjusted) terms since 1980. According to the ‘U.S.-China Economic and Security Review Commission Report’; China’s gross domestic product (GDP) has grown from $1.32 trillion in 2001 to a projected $5.87 trillion in 2011, representing an increase of more than 400%.

The U.S. trade deficit with China is now more than half of the total U.S. trade deficit with the world… Moving forward, China ratified its 12th Five-Year Plan (2011– 2015); a government-directed industrial policy that focuses on the development and expansion of seven strategic emerging industries, namely; new-generation information technology, high-end equipment manufacturing, advanced materials, alternative-fuel cars, energy conservation and environmental protection, alternative energy, and biotechnology. 

The report predicts that China will likely continue to combine targeted investment with preferential tax and procurement policies to ensure that Chinese firms emerge as global leaders in these industries, within five years. However, according to Michael Beckley; even with its enormous economic power, China is still a poor and technologically underdeveloped country.

As a result, its prosperity will remain dependent on ties to the advanced global economies and, in particular, on good economic relations with the U. S. For the past 30 years, the U. S. and China have grown their economies through a division of labor. This cooperation can endure, but only if Americans and Chinese disabuse themselves of the notion that they are locked in a zero-sum economic competition… 

Hide brilliance, cherish obscurity”.~ Deng Xioapin