As the American Empire declines, more and more observers are proclaiming the Rise of China, which as the story goes, will one day replace the U.S. as the world's dominant superpower. People love these kind of stories. The aging heavyweight champ, who has developed a paunch and lost his skills, is defeated by the young, lean, mean contender with a dynamite right hand. The inevitable changing of the guard. Sic Transit Gloria Mundi.
In IMF bombshell: Age of America nears end, Marketwatch's Brent Arends wants to persuade us China will surpass the United States in a scant five years.
For the first time, the international organization has set a date for the moment when the “Age of America” will end and the U.S. economy will be overtaken by that of China.
And it’s a lot closer than you may think.
According to the latest IMF official forecasts, China’s economy will surpass that of America in real terms in 2016 — just five years from now. Put that in your calendar...
According to the IMF forecast, which was quietly posted on the Fund’s website just two weeks ago, whoever is elected U.S. president next year — Obama? Mitt Romney? Donald Trump? — will be the last to preside over the world’s largest economy.
Most people aren’t prepared for this. They aren’t even aware it’s that close. Listen to experts of various stripes, and they will tell you this moment is decades away. The most bearish will put the figure in the mid-2020s.
But they’re miscounting. They’re only comparing the gross domestic products of the two countries using current exchange rates.
That’s a largely meaningless comparison in real terms. Exchange rates change quickly. And China’s exchange rates are phony. China artificially undervalues its currency, the renminbi, through massive intervention in the markets.
In addition to comparing the two countries based on exchange rates, the IMF analysis also looked to the true, real-terms picture of the economies using “purchasing power parities.” That compares what people earn and spend in real terms in their domestic economies [left].
Under PPP, the Chinese economy will expand from $11.2 trillion this year to $19 trillion in 2016. Meanwhile the size of the U.S. economy will rise from $15.2 trillion to $18.8 trillion. That would take America’s share of the world output down to 17.7%, the lowest in modern times. China’s would reach 18%, and rising.
Just 10 years ago, the U.S. economy was three times the size of China’s.
As Arends admits later in the article, IMF forecasts are subject to change! The one thing you can depend on in any such forecast is that world output just grows and grows and grows. That's what the IMF said in 2007, too. But we need to take a closer look at China. Arends assumes China's economy will grow and grow, just as the IMF does. I last looked in on the Asian Tiger in my post Is China's Housing Bubble About To Burst? For background, read that article and links contained therein.
Evidence that China's property markets are an accident waiting to happen keeps piling up. In Beijing, home prices fell 26.7% month-over-month in March. Home transactions fell in 30 major cities by 40.5% year-over-year, and land sales all over China fell 21% quarter-over-quarter. China's housing market is looking pretty shaky.
Let's not beat around the bush—China's GDP numbers are as phony as a 3-dollar bill. The word goes out from on-high to those running the provinces: your GDP target for this quarter (or year) is such & such, and woe to those who do not make it so. Since government spending on big infrastructure projects goes directly into GDP calculations, officials in the provinces make it so by building big infrastructure projects. They build whole cities nobody lives in, or huge shopping malls nobody shops in (video below).
China's oil consumption has topped 9 million barrels-per-day in each of the last 5 months, with apparent demand coming in at 9.2 million in March according to Platts, a decrease from a near-record 9.58 million in February. It takes a lot of oil to build cities nobody lives in and huge shopping malls nobody shops in. In America we waste oil driving our cars and light trucks. In China, they waste it building gigantic but pointless infrastructure projects. And how long can China's still robust oil demand growth go on before there simply isn't enough to go around? I have predicted that we will have an oil price shock, a real one based on supply & demand, in 2013 ± 1 year.
This is the "miracle" of Chinese economic growth. Before Brent Arends proclaims the meteoric Rise of China and the End of America, perhaps he should ask himself just how long this "miracle" is likely to last.
Another thing about China's economic growth: So much of that manufacturing capacity belongs to corporations and companies headquartered outside of China taking advantage of dirt-cheap Chinese labor. The Stalinist model is not exactly conducive to the development of home-grown enterprise (not to mention taking care of the environment).
Posted by: Loveandlight | 04/26/2011 at 11:06 AM