Justifying and discussing optimism and pessmism about China

As often arises whenever Nextbigfuture has an article about China, there are various points brought out:
1. Too many articles about China
2. Too much optimism about China’s prospects – some were too optimistic about Japan
3. The expectation that China will stumble badly or collapse

I am perfectly willing to consider evidence or strong theories about China or any major aspect about the future.

I admit that I would be classified as a China optimist. But I recognize that China has a lot of problems and major challenges to overcome.
The US has problems but a lot of strengths.
India has some strengths but even bigger problems than China and more to overcome to achieve sustainable high growth for 40+ years.

China is not Japan of the 1970s or 1980s

China’s economy is now probably at least triple Japan on a GDP Purchasing power parity basis. China’s economy is about double Japan on a currency exchange basis.

China has a population of 1.36 billion versus 127 million for Japan and 317 million for the USA.

Some have said that China may not overtake America this century after all. This is some kind of wishful thinking that China will be weak and the US will get stronger. I hope that the US gets economically stronger, but I think it will take pro-growth oriented policies.

China’s Development Research Council (DRC) expects growth to drop to 6pc by 2020. It could be much lower. The US Conference Board says it will average 3.7pc from 2019-2025 as the ageing crisis hits. Michael Pettis from Beijing University thinks it is likely to slow to 3pc to 4pc over the next decade, deeming this entirely desirable if it comes from taming the runaway state enterprises.

If so, China’s growth may not be much higher than the new consensus estimate of 3pc for a reborn America, powered by its energy boom and the revival of the chemical, steel, glass, and paper industries.

China’s output is 75pc of US levels on a purchasing power parity (PPP) basis but even on this measure the Chinese `sorpasso’ is looking less certain. Clyde Prestowitz, an arch US `declinist’ who has just thrown in the towel, says China may “never” catch the US on any relevant measure. That is a stretch, but not impossible on a forecastable horizon.

“Keep in mind the next time you are in China and find yourself choking on the foul air that the things making the air foul are counted as positives for GDP. If you adjust Chinese GDP for environmental degradation and for over-investment in things that will never be used, it falls in size by 30-50 per cent.

Congressional Budget Office projection of US growth

Middle Income Trap

Middle income trap is where a country gets stuck at $1000 to $12000 in gross national income per person in 2010 dollars.

As wages rise, manufacturers often find themselves unable to compete in export markets with lower-cost producers elsewhere. Yet, they still find themselves behind the advanced economies in higher-value products. This is the middle-income trap which saw, for example, South Africa and Brazil languish for decades in what the World Bank call the “middle income” range (about $1,000 to $12,000 gross national income per person measured in 2010 money).

Typically, countries trapped at middle-income level have:
(1) low investment ratios; [Everyone complains that China’s investment ratios are way to high]
(2) slow manufacturing growth; [China has had high manufacturing growth and is still growing]
(3) limited industrial diversification; [China is industrially diversified]
(4) poor labor market conditions

On the matter of high value product production, here is a 2013 report that analyzes 2011 trade data.

Chinese-made products in 2011 captured 5.28 percent of total American purchases of 106 groups of capital- and technology-intensive products. All are industries that create an outsized share of America’s highest paying jobs on average, and lead the American economy in innovation. Many, further, are used extensively in defense-related manufacturing.

Despite the claims of faltering Chinese competitiveness, this Chinese market share figure represented an 8.42 percent jump from the 2010 level of 4.87 percent. In 1997 – the first year for which these calculations are possible – China supplied only 0.64 percent of U.S. consumption of these products. Moreover, these 2011 figures surely understate the true extent of Chinese goods’ control of U.S. advanced manufacturing markets. For due to flawed official data, recent surveys have had to omit results for big industries, such ase computers and telecommunications equipment, where the last recorded import penetration rates for Chinese products exceeded 60 percent.

Its gains have propelled China ahead of Germany and Japan as the top source of the high-value manufactures consumed by Americans. The total import share of America’s markets for advanced industrial goods reached 37.57 percent in 2011, a 1.33 percent increase from the 37.07 percent level in 2010, and 53.41 percent higher than 1997.

Superior US growth versus Europe

The US has usually had more economic growth than Europe. Europe has France and some other countries with low weekly working hours (35 hour work weeks).

Europe was also far less willing than the US to allow creative destruction. Europe would preserve buildings and the character of cities in preference over changes that would allow more growth.

The US would support the creation of big box stores and larger stores like Walmart over mom and pop stores. Europe was more protective of small merchants. The US would outsize Europe in factories and stores and the US would out innovate in retail.

The US is being outscaled by China’s factories.
China protects and copies the US in retail innovation. The US has eBay, Amazon and Walmart. China has Alibaba (which has Tmall) and 360buy.com

Not Pessimistic about the US

I am not pessimistic about the US.
The US still has Google and Elon Musk and many other innovative people and companies.
The US is on track to extend innovation in space (Spacex, Planetary Resources and cubesats.)

The US is a leader in fracking, natural gas and has low cost energy which helps energy intensive manufacturing.

In robotics the US is doing very well.

The US will have to do more to improve its competitive position.

The US should not hope to win by default. Japan screwed up and had one third of our population. They did get to comparable per capita income. China will stall out at 20% of our per capita income so the US does not have to change or worry or fix things or try to achieve faster growth.

The US economy and system has a lot of strengths going for it. The US would not have been number one for nearly a century without strengths.
Canada fixed their government budgets. The US will be able to as well. There is a lot of fat and waste in the US system. There will be cuts and adjustments that can be made for the US to regain more economic strength. The US has a lot of resources like 7-9 trillion barrels of oil in place.

The US should not allow trillions in waste, corruption and bad allocation just because it will not be economically fatal in the long run.

But please provide comments and input about why I should be more pessimistic about China, or more optimistic about the US.

Nextbigfuture article topics of the 14600 article written and each article has multiple topics.

science (3143) – China is now second in global research and development spending but most coverage on science is not about China
energy (2888) – China is building ten times more energy each year than the US or Europe. Almost no China focus
technology (2030)
space (1784) – almost all space is not about China. Elon Musk and advanced space like Planetary Resources are more interesting
united states (1745) – the US covered more than China
nuclear (1706) – China making the most nuclear reactors so this coverage overlaps with China
china (1664)
world (1652) – we try to have global focus
medicine (1286) – rarely any China focus
materials (1002)
military (522)
environment (515)
robotics (505)
solar (492)
cars (476)
fusion (400)
propulsion (393)
batteries (365)
lasers (365)
life extension (362)
carbon nanotubes (361)
canada (359)
carnival of space (322)
quantum computer (322)
artificial intelligence (313)
brain (303)
airplanes (301)
cancer (279)
nanotechnology (277)
stem cells (255)
transhuman (247)
metamaterials (233)
wireless (214)
climate change (212)
superconductor (212)
cities (208)
supercomputer (177)
magnets (171)
SENS (162)
air pollution (161) – This is usually negative coverage of China
War (158) – There is risk of conflict between Japan and China

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