China’s rise – delayed again

The unstoppable march of China continues, according to (and in turn according to Chinese scientists).  China’s latest satellite can take pictures at a resolution which eludes US satellites. 

Subtext: start learning Mandarin – now!

But you might be better employed seeking out stuff like the latest from George Magnus, a quirky former financier, writing in the Guardian – no less.

Magnus familiarly tracks the Chinese growth miracle over the three decades to 2020:

“China’s GDP growth doubled to more than 13%, while America’s halved to 4.5%. That pushed China’s GDP up from 5% of American GDP to 66%.”

But now thanks to debt, an over-reliance on state-directed investment and a crackdown on entrepreneurs (inter alia):

“… the huge disparity in GDP growth has been eliminated. In the last few quarters, China’s GDP has been growing at half the rate of the US. “


“Although that discrepancy is probably unsustainable, America’s estimated $7tn GDP margin over China in 2021 means that comparable rates of GDP growth in the future will sustain and even widen the margin. A Japanese thinktank has recently extended the date when it expects China to overtake the US, from 2029 to 2033. “

His conclusion:

“Deferrals like this are now a feature, and there will be more.

And ominously, a cloud no bigger than a man’s hand:

“Its zero-Covid policy could keep barriers in place between China and the world economy until 2023 or even beyond …”

Magnus’s analysis is well worth reading in full.  It positively exudes imaginative speculation.

Given notorious uncertainty over Chinese economic data, one thought experiment might be to ask: what are the most reliable bits?

One possible answer is consumer spending – regular, not subject to much mispricing or data rigging.  And, as Magnus points out, China:

“ … has income per head that is the equivalent of Mexico, but consumption per head that is no higher than Peru. Consumer spending accounts for about 37% of GDP, little higher than it was in 2010, and much lower than in 2000.”

Now here’s a thought.  What if that shrunken consumer spending is the real beating heart of the Chinese economy?  And a big chunk of the rest is a real estate bubble and Soviet-style centrally planned investment (don’t forget those cutting-edge Soviet era projects like draining the Aral Sea).

Fair enough – more needs to be thrown into the mix; China still has, for example, its trillions of foreign exchange reserves. Although curiously the negative interest rates which accrue can’t be helpful in achieving world economic supremacy.  And compare unfavourably with the rates of return earned by foreign investors in China’s private sector – or, for that matter, the seigniorage profits accruing to the US as world currency provider.

It is a reminder that underlying economic strength is often best inferred from the output of the non-state (ie, private) economy.

So perhaps in future, the more penetrating and informative comparisons of Chinese economic structure and growth might be between China (GDP per capita $10,430) and near-rivals Russia ($11,786), Romania ($10,830) and Malaysia ($10,616).

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