Goodbye America, Hello China? Think again

By Bernd Debusmann
March 12, 2010

For the growing number of Americans who see China heading for inevitable global dominance, nudging aside the United States, a brief walk down memory lane helps put long-term predictions into perspective.

Not so long ago, Japan was seen as the next (economic) number 1. American executives studied the 14 management principles of The Toyota Way, developed by the automobile manufacturer that grew into the world’s biggest car maker and is now recalling millions of defective vehicles.

Between the mid-1980s and early 1990s, books with titles such as Trading Places – How We Are Giving Our Future to Japan and How to Reclaim It (by Clyde Prestowitz) were required reading in Washington. Learned panelists expounded on the wondrous efficiency of “Japan Inc.”

A glut of “Amazing Japan” books, Chicago Tribune writer Ronald Yates noted in 1987, hammered home the same theme: Japanese technology is superior, Japanese management is better, Japanese products are unrivaled, Japanese people work harder, Japanese are smarter, Japan is No. 1.

Skip over the two decades of economic stagnation of Japan Inc. that soon followed the hype and fast forward to the present. The book which best reflects today’s American worries is entitled When China Rules the World: the End of the Western World and the Birth of the New Global Order, by British author Martin Jacques. His forecast is part of a growing library of essays, analyses and books on the 21st century belonging to China.

If history is any guide, there’s a better than even chance that the “goodbye America, hello China” school of thought will prove as embarrassingly wrong as the 1980s assessment of the relative strengths of Japan and the United States.

Long-term predictions tend to be more often wrong than right and the decline of the U.S. is a topic of seasonal regularity.

In February, a poll by the Washington Post and ABC, asked whether the 21st century would be more American or more Chinese. In terms of overall influence on world affairs, 43 percent opted for Chinese and 38 percent for American. In a Pew poll a few months earlier, 44 percent saw China as the world’s leading economic power and just 27 percent named the United States.

That was a remarkable reversal of opinion from early 2008, when 41 percent told Pew pollsters they thought the U.S. was the world’s top economic power and 30 percent named China. That shift probably says more about the sour mood of Americans very slowly emerging from a painful recession than about facts.
LONG WAY TO CATCH UP
China the world’s leading economic power? Its economy is less than a third of that of the U.S. Its GDP per head is one fourteenth of the U.S., roughly half that of Kazakhstan, according to the World Bank. About a quarter of the world’s economic output is produced by the United States, whose population is less than a fourth of China’s 1.3 billion.

So there’s a very long way to catch up for a country beset by a variety of Third World problems, from lack of paved roads in many rural areas to water pollution so severe that 700 million people have to drink contaminated water every day, according to the World Bank.

China enthusiasts made much of statistics early in the year that the country had overtaken Germany as the world’s largest exporter in 2009. Along with many of the figures cited to show China’s relentless long march to superpowerdom, it gives an incomplete picture.

A large proportion of those exports, three quarters by some accounts, are products assembled for international companies from imported components, not the fruit of brilliant Chinese innovation. Similar to the maquiladora assembly plants on the Mexican side of the U.S.-Mexico border, such factories provide jobs but don’t do much for the economic well-being of the average citizen.

And the fast economic growth of the past (eight percent plus, year after year) that has so impressed many American analysts is bound to run into a giant obstacle for which there is no solution in sight. Nicholas Eberstadt, a Harvard demographer, has long warned that China is facing a surge of citizens aged over 60 for which the Communist-run system is not prepared. By 2050, according to estimates by the Washington-based Center for Strategic and International Studies (CSIS), China will have more than 438 million people over 60 and 100 million over 80.

It is an unusual phenomenon, a country growing old before it grows rich, and it has consequences that go beyond retirement policy. China’s rapid ageing, a consequence of the government’s one-child policy, “threatens to impose a rising burden on the young, slow economic and living standard growth and become a socially destabilizing force,” said a CSIS report last year.

Without a solution to that problem, “it is difficult to envision a prosperous, long-term future for China.”

So, here’s a word of advice for Americans fretting about their country’s standing in relation to China: Relax!

56 comments

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China is a cheating economy … i bought a NOKIA phone in Colombo, it said Made in Finland / fake labels in all possible areas … but half the price of the original product and its started giving problems in 3 months :-)

i went and complained to the dealer and he said its from china … shame on china government they are depending on pirate products … Asian countries and rulers should grow up they are today’s trouble makers …

Posted by rajeevtco | Report as abusive

There a lot of uneducated posts for this article, and it would take too much time to correct them…..but I will try to correct the most blatantly ignorant posts.

To Story Burn:
The Chinese do not own the US, the US actually owns the Chinese. The US is holding 2 Trillion dollars of theirs. The Chinese can’t sell their T Bonds without destroying the very value of those T Bonds. Also, the manufacturing miracle of China would be shot to nothing if the US Congress started placing tariffs on Chinese imports, essentially limiting access to China’s #1 customer.

To Pterosaur:
No, you’re absolutely wrong. The best thing for humanity is to stand up to dictatorships like the CCP and promote equality and freedom for humanity. How can supporting and cooperating with suppressive dictatorships benefit humanity?

To KC10MAN:
I would recommend taking a course in basic economics.

To Newsreader182:
China is not innovative, by any measure of the word. What they are good at is hacking and stealing the innovative technology that others have invested uncounted time, money, and human capital to develop. You know what they say about cheaters, right?

To JohnG73645:
It is apparent your blatant bias is clouding your ability to reason.

To AnthonyKovic:
Comparing current Chinese rule to that of the 50 year rule of Japans LDP is incredibly misleading. The current Chinese government is a one party system controlled solely by the communist authoritarian regime…..dictatorship? YES! The Japanese LDP is a democratic political party who was elected to govern for 50 years by the people of Japan….dictatorship? NO!

To Theorom:
You are absolutely wrong to say that the stagnation of Japan’s economy was a result of any appreciation of the Yen. Broader macro economic imbalances were to blame for the slowdown in Japan’s growth. Most specifically, it was the burst of the property bubble that offset the stagnation. It was a similar property bubble that pushed the US economy into a recession 2 years ago. It is interesting to note that a similar bubble is currently building in China, and will most likely be the cause of the next global economic crisis.

Now that I’ve corrected the most blatant mistakes of the blogs that have preceded my own, let me just say this:

The author of this article has pointed out some very real and serious challenges that face China. I didn’t read anything in his article predicting the fall of China, nor did I read anything predicting the never ending dominance of US influence. All I read was a rather objective analysis of some of the challenges facing China, and why these challenges may defy the predictions of a “China Century.”

Finally, my own opinion:

China will have to deal with the challenge of an aging population. This aging population will cause a heavy strain on the Chinese economic situation. Without any viable Chinese Social Security System, each Chinese child will be responsible for the care of two parents, 4 grandparents, and their own child. I don’t know about you, but that’s a huge burden that will be heaped upon each and every Chinese child in the next 20-30 years. Just the health care costs for these 8 people that each Chinese child will have to face is daunting.

China will also have to deal with finding a way to employ an increasingly unemployed manufacturing population. As costs rise, most factories will most likely relocate to India (or any other up and coming low-cost manufacturing base with a population to fill the factories). If China can’t find a way to re-employ the hundreds of millions of people now employed in the manufacturing industry, they could find themselves with some serious social problems.

Hopefully fewer uneducated posts will appear, and more informed individuals will speak out.

Posted by Voice-of-Reason | Report as abusive

IMO, technology dictates power struggles. China still goes to Russia all the time for this, this puts them in the number three spot hypothetically.
I’m lumping Europe, N. America into NATO.
Just as imports shifted from Taiwan to China, that may and well shift as well.
Funny how no one mentions the Russian’s in all this, as they are a world lender now and have been for awhile with more tech than China.
Interesting times. India seems to be a wild card as well in what could be construed as birth/growing pains.
A definite big possibility for an export swing.

Posted by avgprsn | Report as abusive

China is just too big to sustain itself … It will implode eventually, and remember, they have those staggering imports, or I should say “had” because Americans were buying it all..
I remember the BUY AMERICAN backlash, thats when all of a sudden TOYOTA and others decided it was best to build their cars in AMERICA…Instead of EXPORT them here …
Many have counted us out in the past, and we always come around, we arent going anywhere, nor will America ever be number 2 ………….Sorry

Posted by Daph | Report as abusive

But Nokia sold it to you – they are cheating you.

(if in fact it was made in China and by whom – often western companies manufacture thins in China and then they say it was made in China)

Posted by stathis | Report as abusive

I’ve taught highschool in both poor and rich areas of China and the US. Today the youth in China are worried about learning English, being the smartest in class, going to college and looking forward to putting in hours in a company to make money and have families. I honestly cant say the same about the average US high school student. There seem to be a lot of smart economists on this blog including the author so I dont want to pretend like Im the expert – but in my humble opinion the middle class Chinese kids of today beat the middle class American kids of today in terms of ambition and drive. That should indicate something about the future. And its not only China – as a travelling teacher I see the same in several Asian countries.

Posted by John2244 | Report as abusive

This is a biased article. So, America the Bankrupt is forever No. 1? America is forever young and does not have the challenging an aging population?

And America is forever innovative and growing?

China minds its own business. It is not tragetting to replace America nor Europe. It has enough challenges in China. Yes, relax. China does not want to be No. 1 in economic power. It wants peace and harmony within its borders.

Posted by ronald1234 | Report as abusive

Relax JohnG-73645 and Pterosaur.

Japan still is an independent country with it’s own culture, ideas, thoughts, defense force and political system. Even if you can’t admit it. So what is your point?

Second, China has economic and demographic problems that were created over several generations of authoritarian/communist government’s mismanagement or ignorance which surely didn’t just vanish when China joined the WTO. China’s problems will require a multi-generational solution; that will require some clear thinking which shouldn’t include any jingoistic nonsense.

BTW, jingoistic rage, “USA-you are going down”, always reminds me that someone hasn’t quite got pass teenage angst.

Speaking of slaves remember this:

Slaves rescued from Chinese brick factories:
http://news.bbc.co.uk/2/hi/6733045.stm?l sm

It’s late so,
晚安.

Posted by Bourbaki | Report as abusive

Voice-of-Reason, really nice post.

Posted by Bourbaki | Report as abusive

Wow!!! I half expected to be cut to pieces by, Voice-Of-Reason; perhaps my post didn’t have enough data to contradict, or just wasn’t interesting – not sure whether to feel relieved or offended! I confess to not being ‘well endowed’ with economic numbers – I generally take the lazy route when making prognosis, relying on evolutionary tangents of human behavoiur to determine where the next step will be taken. However, a good post from V-O-R.

China, it should be noted, has, it would appear, tried to gain western approval by adopting some of their standards (culture), eventually they may even adopt all of them, but these will reamain values that are not inherent (for the the time being). Will China ultimately suffer an identity crisis?

Posted by nightlight | Report as abusive

Innovation come when you have freedom ! In order to innovate and lead the world economy, Chinese must be free from the control and the oriented media of the communist party …
A communist political party kills Chinese innovation

Posted by Jimrom | Report as abusive

Not only 1 child policy, but also (and largely because of it) a gender imbalance, such that in some areas there are less than 60 girls for 100 boys. As usual, the poorer the family, the harder it will be for the man to find a mate, let alone get married. In less than 2 decades there will be many millions of poor angry men with no chance to get settled in life. Either the Chinese government will find them their place in life, or it will have to deal with a social unrest on the scale long unseen. And guess what the easiest way to channel young men is? Yep you’ve got it right – army.
It’s highly doubtful that any country can keep a standing army of that size idle or doing peaceful exercises. Add to that that most inhabitable areas in China already are overcrowded, all arable land already farmed, and a lot of places are getting or already got contaminated beyond being safe to live or farm. China is a threat, and the military side of it is at least as big as the economic one. It’s doubtful that China would attack America or EU, but neighboring countries like Indochina, India, and especially Russia, must beware of it. Just as China is exporting its economic problems because it doesn’t have sufficient internal consumer market, it will try to export its social problems because it will not be able to resolve them internally. And export of social problems backed by military force is called war.

Posted by An0nym0us | Report as abusive

Voice-of-Reason: where did you get your PHD’s in political science and economics?(I apologize for the sarcasm but you do come off as arrogant and rude). I would point out that in no place in my post did I state that China was more innovative than the US or even a generally innovative economy for that matter. A historical fact that fail to mention is that technical innovation in science and engineering has always started first by borrowing on achievements of earlier cultures and then building after mastery of the basics. Didn’t Japan borrow much from the West post-war to get its manufacturing machine going? Renaissance Europe borrowed know-how from the Romans and the Romans borrowed technology from Ancient Greece. Even America had to ‘borrow’ technology from Great Britain to power our expansion during the Industrial Revolution. As for demeaning an entire nation because of some headlines about hackers and knock-off prada bags, well I doubt China has fueled 9% annual growth for the past 30 years purely from selling pirated DVD’s. And you probably offended hundreds of millions of hard working Chinese who do not make a living by being “cheaters” as you say. To sum up, the point of my post was not really about what China is doing and whether or not they are going to outperform us in the future. My point was that without an actual plan for solving our problems, or the ability and political will to implement any workable plan, the US will have trouble competing in the future in the same way we have in the past.

Posted by Newsreader182 | Report as abusive

i think it is better to think to be ally than to be rival, because simply there is another predators that will discolse themselves next few years either by coalition or by returning to settelments as a result of shortage of food and water

Posted by mokho | Report as abusive

CHINA | ECONOMY | JAPAN | UNITED STATES 2050

2050 10bn people on the Planet, how to survive ?

The Chinese model 1 child per family is the right way,
India and Africa need to adopt 1 child to stop overpopulation causing climate change.

2050 end of Petrol and Uranium resources,
the winner will have a Renewable energy mix Smart grid.
China and US supposed the leaders, Europe
following with Desertech and Wind Smart grid.

Production, China is leading.
US finance needs to change for Job creation by US production again (look to Fisker automotive Hybrid cars)

Change management
China may encounter an aging population and a gameboy generation not fit for production. US change, 2020 the majority of Americans will speak Spanish (official language?) 2050 the majority of Americans will be black.
Where will Innovators create the next de-central green
Industry driven by founders “Henry Ford” style and not
Speculation funds preferring China investments?

Interesting comment section, well balanced, nice weekend thanks for Quality writing, reuters gets the better place

Posted by Solarlife | Report as abusive

Yes.As the article said that Goodbye my dear American and Hello my dear CHINA !!! Today, the China have been the most powerful country in the world. His economy military will be the NO’1 .

Posted by wujun | Report as abusive

China is not the NO.1, regardless of economics and military power, she has long way to go, lots of population in China are still poor, short of money to change their life standard, lots of youngsters short of job, but actually we still can regard this is an opportunity for China to catch up, she still need to make production, to construct paved road and express way, airport and other infrastructure, all of which will give access to the poor nation chance to do more to catch USA and other western nations.

Just reading the essay and comments full of worry and anxiety about the shortage of food and clean water and overpopulation, i do think it is unnecessary for us, due to that science and human wisdom will lead us reach out of the mess.

Posted by AllenLuo | Report as abusive

America is finished, this writer is deluded in comparing the Japanese situation to the current Chinese one. First China has a strong military, Chinese business is spreading especially to Africa and both sides are benefitting from tghis trade unlike the Western colonised-one way trade, China is impartial unlike hypocritical, racist and partial US, Chinese wings are spreading and the world is embracing a non warmongering and humble country. America is deceitful, greedy and arrogant. We welcome China with open arms. The Palestinians are still being trampled on but we have the USA which prides itself on freedom and democracy siding with Israel and then has the audacity to tell Iran not to go nuclear. The US has used nuclear weapons, attacked countries at will, stolen resources blatantly and via the IMF’s, world banks and other robbing institutions. Shout about democracy whilst sleeping in bed with despotic regimes in Egypt, Saudi Arabia, Jordan, Qatar and UAE. I hope and pray to the Good Lord for their quick demise.

Posted by Kalada | Report as abusive

To all you making noise about democracy and one party system think the one party system comes out tops, too many cooks spoil the broth. Look at your Health care and other core decisions that are being stalled because of wretched politics, look at the Dutch government- always falling, look at India which cannot seem to pass viable policies because of their incompetent multiparty system. China has all the aces, respect, fair trade, non interference in others business, standing alone in support of Iran in the useless politicised security council, humility, independence. The USA is a discredited and a waste of space. Sorry yanks, just like the Roman empire you would fall.

Posted by Kalada | Report as abusive