China: Next Superpower?

[Jim Bowen]

I was reading an history of the Communist countries earlier this month (not a fantastic read), and the author was of the opinion that China may well stumble a bit before becoming a full superpower. He was citing the 900,000,000 poor peasants, whose potential for unrest is frightening. I'm not sure if I buy it, but certainly something to think of.

Jim Bowen

 

[H3LL]

It's about time people learnt to forget cold war propaganda (both sides) and recognise that China is a different country today.

While many countries are bemoaning the decline of educational standards, the fall in literacy and the shortage of students entering into scientific disciplines, they should be interested in the fact that the opposite is happening in China.

"The only way ahead is science, technology and education", is the culture of young modern Chinese.

The equivalent of the "Prom Queen" is seen hanging off the arm of the pasty-paced geek with books under his arm. The macho sport hunk gets the less than picturesque. Education and academic ability is seen (correctly) as the way ahead and the path to success.

Recent space flight successes, the development of a large particle accelerator and bleeding-edge successes in many areas of science paint a very different picture to a country that could hardly manufacture a functional tap (faucet) only a few years ago and easily within the memory of some of us.

Also the shear scale of the country is beyond some people’s comprehension. I spoke to a friend that said she came from a small town. This small town has a population of 3,000,000. I read somewhere that there are 300,000,000 students of English. That's higher than the population of America. (Granted, it's not to say that they are all fluent, but perhaps better than most of us can speak Chinese).

I take some comfort from the fact that in 5000 years of culture that flows through right up to today, the Chinese would seem to be considerably less aggressive than any other European based culture, with a minor transgressions (Mongols).

"There are a billion (actually > 1.3 billion now) people in China. It's not easy to be an individual in a crowd of more than a billion people. Think of it. More than a BILLION people. That means even if you're a one-in-a-million type of guy, there are still a thousand guys exactly like you." - A. Whitney Brown, "The Big Picture"

Yes, there are problems in China, but there is activity and resolve to correct them but it takes time. The pace of change is breathtaking to behold. The west looks like a slug on sleeping pills by comparison.

I'm trying to give a broad and positive look at modern China. I know the pedants, McCarthy’s and paranoids can pick holes in it, but it would be nice if the west started to look to education of its population as a solution instead of reaching for their gun.

Chinese Proverb: "Do not remove a fly from your friend's forehead with a hatchet. "

 

[Grammatron]

So H3LL, do you think basic human rights are soon to follow?

 

[H3LL]

So H3LL, do you think basic human rights are soon to follow?

Predictable....Hard to answer positive or negative.

Which ones are you referring to?

 

[crimresearch]

So H3LL, do you think basic human rights are soon to follow?

I've got a good friend from Beijing... a few years ago we were having dinner with his parents, and his mom (a former Red Guard), was telling us how great America was...except that we had too many rights.

I suspect that there will be an evolution, but it may not mirror Western expectations...

 

[Art Vandelay]

Recent space flight successes, the development of a large particle accelerator and bleeding-edge successes in many areas of science paint a very different picture to a country that could hardly manufacture a functional tap (faucet) only a few years ago and easily within the memory of some of us.

Sure, if you compare it to what it used to be, China looks good. But it's still far behind the US.

I take some comfort from the fact that in 5000 years of culture that flows through right up to today, the Chinese would seem to be considerably less aggressive than any other European based culture, with a minor transgressions (Mongols).

I think that a Eurocentric view of history is partly responsible for this belief. If Italy invades France, it's considered a war of aggression. If one part of China invades another, it's considered a civil war. Even though China is larger that Europe, it gets lumped into one country, and so all the conquests aren't considered "aggression".

 

[Grammatron]

Predictable....Hard to answer positive or negative.

Which ones are you referring to?

I'll just go with three.

Freedom of speech, information or religion.

 

[H3LL]

I'll just go with three.

Freedom of speech, information or religion.

I'm not trying to paint a glowing, cuddly picture of an enlightened ultra-liberal utopia. Just to get some minds away from cold war propaganda.

Freedom of speech - It's improving. I'm speaking to you now.

Information - Also improving. US, French, Japanese and UK news channels are all easily available in China's cities and towns. Not that I would call some US TV channels free and unbiased.

Religion - You can be and practice whatever religion you want. there are more Christians in China than in America. Agreed, you are not allowed to be evangelical, but I'm not so sure that's a bad thing. It will keep 1inChrist away There are 56 protected minorities that have various religious practices that are protected as their right although it is contrary to national law. (Do you have that in the US? I seem to remember that Mormons are not allowed to have several wives. I believe that some minorities in China are allowed to have several spouses, contrary to national law).

As I said, lots of problems, but movement to improve. At least they listen and try. That is more than can be said for some nations, that never listen to others because their way is perfect and the only way.

Art Vandelay- Sure, if you compare it to what it used to be, China looks good. But it's still far behind the US.

Just my point. As education in key areas continues to slide in the US and drive forward in China. How long will this be true?

It's the efforts of JREF and others that are trying to stop the slide. It is a pity that so many are doing their level best to thwart Randi's efforts. They must really hate their country.

Double your efforts to educate and improve education. Freedom comes from education.

 

[Grammatron]

I'm not trying to paint a glowing, cuddly picture of an enlightened ultra-liberal utopia. Just to get some minds away from cold war propaganda..

Thank you for the reply. Yes I know it's improving but it still has a long way to go as far as human rights is concerned. I just hope it makes advancement in those fields as well. And while it's having great success in raising the economy, I understand the rural areas are still very poor. I do hope China continues at this rate and becomes an economic and social success.

 

[crimresearch]

Thank you for the reply. Yes I know it's improving but it still has a long way to go as far as human rights is concerned. I just hope it makes advancement in those fields as well. And while it's having great success in raising the economy, I understand the rural areas are still very poor. I do hope China continues at this rate and becomes an economic and social success.

Well, every country still has a long way to go to reach an ideal level of equality, or freedom.
Certainly the progress made in the last 10 or 20 years in China is remarkable. People can worship (even though the government controls the Chinese Catholic Church...people have a concept of private property ownership that was unheard of for a long time, people can aspire to careers and educaton in new ways, and the sense that the people influence their leadership, or their laws, is probably no more of an illusion than believing that the average American can dictate policy to his or her government.

And, anyway I've never believed that the classic American concept of freedom would work the same way in different circumstances, and I wonder if a country as heavily populated as China wouldn't just fly apart under the social forces that we consider 'good'.

 

[Zep]

China's recent history needs to be put into a proper scale. The period 1949 to 2004, 55 years, is but a small part of the 3,000+ years of recorded Chinese history. That is to say, if China sudenly became a democratic republic just like America tomorrow, the immediate past "communist period" would be but a small fraction in that history (less than 2%).

And I believe we know enough basic history of China to appreciate that for much of the rest of that timespan, China has always been a powerhouse trading nation, among other achievements. In fact, even during the communist period, it didn't stop trading altogether.

So there would seem little doubt that China will become at least a local superpower, if not a global one, on trade alone. We HAVE to face this as a given.

 

[varwoche]

This much is for sure, this ain't your mama's China.

Hooters Shanghai is open for business.

 

[Art Vandelay]

Just my point. As education in key areas continues to slide in the US and drive forward in China. How long will this be true?

I don't see the US as "sliding".

Zep

China's recent history needs to be put into a proper scale. The period 1949 to 2004, 55 years, is but a small part of the 3,000+ years of recorded Chinese history.

Maoism didn't just appear out of nowhere in 1949. It was a fusion of Marxism and a Chinese tradition of authoritarianism.

 

[CapelDodger]

Well, there are several problems with that analysis. First, for the Chinese to "pull out their investments", they would have to find buyers for their investments.

Chinese investment in the US is almost entirely financial. They'll find buyers for the financial instruments involved - including simple dollar deposits - at a price, and if they're determined to sell, that will be at a low price. That will include a low price for the dollar, and a big discount for dollar-demoninated financial instruments (including newly issued ones). The financial investment could also be made physical by buying assets that are currently held by US citizens, which means income from those assets will no longer be patriated to the US. More pressure on the dollar.

The Japanese used to be happy to take US debt in exchange for goods (financing the Reagan-era deficit), then they wised-up and started taking physical assets instead. Dollar debt can always be magicked away by devaluing the dollar. German economists sussed-out the principle in the 20's.

When the Chinese wise-up, who's going to take up the slack? If there are no takers, the US going to have to start paying its way again. And that's going to cause waves at home.

 

[Art Vandelay]

That will include a low price for the dollar, and a big discount for dollar-demoninated financial instruments (including newly issued ones).

There will be a large discount only if funds from other countries are insufficient to take up the slack.

The financial investment could also be made physical by buying assets that are currently held by US citizens, which means income from those assets will no longer be patriated to the US. More pressure on the dollar.

Buying American assets would simply help the US econoy, and refusing to repatriated the income would simply increase foreign dollar reserves, driving up the price of the dollar. This would counterproductive to the whole "dumping American assets" plan.

 

[CapelDodger]

There will be a large discount only if funds from other countries are insufficient to take up the slack.

The Chinese selling-up will increase supply and reduce demand, and I think we can agree on the result of that. As long as the US keeps running such a large trade deficit dollar bonds are not going to be attractive to investors.

Buying American assets would simply help the US econoy, and refusing to repatriated the income would simply increase foreign dollar reserves, driving up the price of the dollar. This would counterproductive to the whole "dumping American assets" plan.

US-owned assets aren't only in the US. If they're bought by foreign owners the US is cut completely out of the loop. Earnings that were previously delivered to the US - increasing the demand for dollars as the local currency is converted - won't be any longer. Thereby making it more difficult to cover the trade deficit, and pushing up dollar bond rates and increasing discounts.

Sale of US-owned assets within the US will help the current account in the short-term, but presumably they will only be purchased if they provide a return. That return will generally be transferred to the owners' home country, which will damage the current account in the long-term. And, of course, depress the dollar since dollars will be sold for the home currency, thus increasing supply.

As you can imagine, I'm in great demand as a conversationalist ...

 

[CapelDodger]

In a historical vein, China has run a trade surplus for the last few thousand years. In modern times that's represented by foreign currency deposits, in early times it was represented by precious metals. The Roman Empire had a problem with money-supply since there was a constant drain of coinage eastwards, with porcelain, steel and (most importantly) silk coming west. The British Empire had the same problem, and replaced metals with opium. (They couldn't conquer the place, which was the solution to the same problem in India.) The Spanish and Portuguese prospered because they had the metals of the New World to spend in the East.

Normal service is being resumed.

 

[Art Vandelay]

The Chinese selling-up will increase supply and reduce demand, and I think we can agree on the result of that.

The question is how large an effect it will be.

As long as the US keeps running such a large trade deficit dollar bonds are not going to be attractive to investors.

The very fact that there is a "trade deficit" shows that bonds are attractive.

US-owned assets aren't only in the US. If they're bought by foreign owners the US is cut completely out of the loop.

If they're owned by the US, then the US will get money when China buys them. The location of the assets is irrelevant. Morever, if China pursues this as a strategy, it will simply cause the US to buy up foregin assets just to sell them to the Chinese at a profit.

Earnings that were previously delivered to the US - increasing the demand for dollars as the local currency is converted - won't be any longer. Thereby making it more difficult to cover the trade deficit, and pushing up dollar bond rates and increasing discounts.

I don't agree with your analysis. The previous earnings would either be returned in the form of goods from the asset's country, or converted into dollars, which would then be spent. Either way, the US wouldn't keep the dollars.

That return will generally be transferred to the owners' home country, which will damage the current account in the long-term.

If it's an asset located in the US, presumably the return will be in the form of dollars. So if China accumlates returns from US assets, that will simply increase their dollar reserve, which is the opposite of what you say should be China's goal.

And, of course, depress the dollar since dollars will be sold for the home currency, thus increasing supply.

You see, you're simply not presenting a consistent scenario. Earlier you said "which means income from those assets will no longer be patriated to the US." If they sell the dollars, they will be repatriated.

 

[CapelDodger]

The question is how large an effect it will be.


The very fact that there is a "trade deficit" shows that bonds are attractive.

One reason why China buys them is an effort to keep the yuan low against the dollar. They're lending the money back to the US so that they can buy more Chinese goods and run up more debt. If China decides that they have as much US debt as they want, the flow stops. To bring in replacement lenders, who aren't currently attracted, there will have to be an increase in interest rates and/or discounts, increasing the cost of public and private debt. Which reduces investment and spending.

If they're owned by the US, then the US will get money when China buys them.

Increasing the supply of dollars within the US, leading to inflation. The location of the assets is not irrelevant.

Morever, if China pursues this as a strategy, it will simply cause the US to buy up foregin assets just to sell them to the Chinese at a profit.

The Chinese, among others, will be in the market for those assets that the US wants to buy. Other punters wouldn't allow the US to act as a middle-man. They'll oubid them, not wait to buy them out later. Assuming the market in assets is open to all comers.

I don't agree with your analysis. The previous earnings would either be returned in the form of goods from the asset's country, or converted into dollars, which would then be spent. Either way, the US wouldn't keep the dollars.

They're currently using rentier income to help balance the trade gap. It reduces the strain on the capital account. Take it away, and the strain goes up. Meaning increased interest rates.

If it's an asset located in the US, presumably the return will be in the form of dollars. So if China accumlates returns from US assets, that will simply increase their dollar reserve, which is the opposite of what you say should be China's goal.

I made the point that the Chinese will sell their dollars for yuan when they repatriate the money. Increasing the supply of dollars, and pushing down the price.

You see, you're simply not presenting a consistent scenario. Earlier you said "which means income from those assets will no longer be patriated to the US." If they sell the dollars, they will be repatriated.

I've clearly not been clear. The US can have as many dollars as it likes. They can print them, after all. The important point is what value is put on them by people selling to the US. If there isn't much to be bought for those dollars - meaning from the US, where people actually use them - they're not going to valued highly. The trade gap indicates that, at the current dollar price, there isn't as much that people want to buy from the US as the US buys from the outside world. So if the Chinese (and East Asia in general) stop recycling dollars in return for debt, there will be a reduction in the value of the dollar where imports are concerned. That will eventually lead to domestic inflation.

 

[H3LL]

Slightly off thread, but bear with me.

I got this article today. You have to register to see the full article but here is a bit that caught my eye:

In August 2003 the McKinsey Global Institute published an analysis of the economic benefits, both direct and indirect, of offshoring back-office service and IT functions from the United States to India. Of the direct benefits, MGI found that every dollar of spending that US companies transfer to India creates as much as $1.46 in new wealth. India receives 33 cents, through wages paid to local workers, profits earned by Indian outsourcing providers and their suppliers, and additional taxes collected by the government. The US economy captures the remaining $1.13 through cost savings to businesses, increased exports to India, repatriated earnings from offshore providers in which US companies have invested, and the additional economic output created when US workers are reemployed in other jobs.

It seems that the US is doing OK from outsourcing (at least in 2003). The reason I thought this closer to topic is that I increasingly hear the comment from outsourcers that China presents a much lower "geo-political risk" than India and are starting to shift investment away to China. This is polite code for saying that Chinese government is not controlled/influenced by fundamentalist religious organisations and US $ are less likely to be funding the next 9/11 if invested in China.

I'm curious as to whether this is just a few savvy/paranoid/sycophantic businesses or if there is evidence that this is so (or not so) in the mainstream US media?

Outsourcing is not going to go away. The US seems to be benefiting more than Germany (the biggest EU outsourcer) and the "word-on-the-street" seems to indicate a shift of investment focus driven by apparently genuine concerns.

I would value your comments to give a wider picture.