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Thread: China overtakes Japan as No.2 economy, US next by 2025.

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    China overtakes Japan as No.2 economy, US next by 2025.

    (Reuters) - China has overtaken Japan to become the world's second-largest economy, the fruit of three decades of rapid growth that has lifted hundreds of millions of people out of poverty.

    Depending on how fast its exchange rate rises, China is on course to overtake the United States and vault into the No.1 spot sometime around 2025, according to projections by the World Bank, Goldman Sachs and others.

    China came close to surpassing Japan in 2009 and the disclosure by a senior official that it had now done so comes as no surprise. Indeed, Yi Gang, China's chief currency regulator, mentioned the milestone in passing in remarks published on Friday.

    "China, in fact, is now already the world's second-largest economy," he said in an interview with China Reform magazine posted on the website (*ʹվ!) of his agency, the State Administration of Foreign Exchange.

    Cruising past Japan might give China bragging rights, but its per-capita income of about $3,800 a year is a fraction of Japan's or America's.

    "China is still a developing country, and we should be wise enough to know ourselves," Yi said, when asked whether the time was ripe for the yuan to become an international currency.

    CAN IT BE SUSTAINED?

    China's economy expanded 11.1 percent in the first half of 2010, from a year earlier, and is likely to log growth of more than 9 percent for the whole year, according to Yi.

    China has averaged more than 9.5 percent growth annually since it embarked on market reforms in 1978. But that pace was bound to slow over time as a matter of arithmetic, Yi said.

    If China could chalk up growth this decade of 7-8 percent annually, that would still be a strong performance. The issue was whether the pace could be sustained, Yi said, not least because of the environmental constraints China faces.

    In an assessment disputed by Beijing, the International Energy Agency said last week that China had surpassed the United States as the world's largest energy user.

    If China can keep up a clip of 5-6 percent a year in the 2020s, it will have maintained rapid growth for 50 years, which Yi said would be unprecedented in human history.

    The uninterrupted economic ascent, which saw China overtake Britain and France in 2005 and then Germany in 2007, is gradually translating into clout on the world stage.

    China is a leading member of the Group of 20 rich and emerging nations, which since the 2008 financial crisis has become the world's premier economic policy-setting forum.

    In one important respect, however, China is still a shrinking violet: anxious to shield itself from the rough-and-tumble of global markets, it does not permit its currency to be freely exchanged except for purposes of trade and foreign direct investment.

    And Yi said Beijing had no timetable to make the yuan fully convertible.

    "China is very big and its development is unbalanced, which makes this problem much more complicated. It's difficult to reach a consensus on it," he said.

    In the same vein, China was in no rush to turn the yuan into a global currency.

    "We must be modest and we still have to keep a low profile. If other people choose the yuan as a reserve currency, we won't stop that as it is the demand of the market. However, we will not push hard to promote it," he added.

    NO BIG RISE IN YUAN

    China has been encouraging the use of the yuan beyond its borders, allowing more trade to be settled in renminbi and taking a series of measures to establish Hong Kong as an offshore center where the currency can circulate freely.

    But Yi said: "Don't think that since people are talking about it, the yuan is close to becoming a reserve currency. Actually, it's still far from that."

    He said expectations of a stronger yuan, also known as the renminbi, had diminished. There was no basis for a sharp rise in the exchange rate, partly because the price level in China had risen steadily over the past decade.

    "This suggests that the value of the renminbi has moved much closer to equilibrium compared with 10 years ago," he said.

    Yi's comments are unlikely to go down well in Washington, where lawmakers have scheduled a hearing for September 16 to consider whether U.S. government action is needed to address China's exchange rate policy.

    China scrapped the yuan's 23-month-old peg to the dollar on June 19 and resumed a managed float. The yuan has since risen only 0.8 percent against the dollar, and economists calculate that it has fallen in value against a basket of currencies.

    China would stick to the principle of holding its $2.45 trillion of official reserves in a mix of currencies and assets.

    The stockpile -- the world's largest - was so big that it was impossible to adjust its currency composition in a short space of time: "We won't be particularly bearish on the dollar at a given time or particularly bearish on the euro at another time."

    (Additional reporting by Zhou Xin; Editing by Ken Wills)
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    A long-term recovery

    China's economic rise is by all means a long-term plan, so it will continue for at least a few decades more, notwithstanding any major catastrophe or setbacks. Even if it slows down a bit; the idea is to build up the Chinese economy as a whole, not to make a few down businessmen rich beyond belief ) Distributing economic growth as evenly as possible will serve to preserve the territorial and political integrity of the country. There have been instances wherein China was split up into different states because the central government neglected to preserve national economic integrity.

    So any floating of the RMB will have to wait a while.

    "We must be modest and we still have to keep a low profile. If other people choose the yuan as a reserve currency, we won't stop that as it is the demand of the market. However, we will not push hard to promote it," he added.
    At least Beijing is patient enough to refrain from actively shaping currency trends. I still wonder why the US Federal Reserve has had to print an astronomical quantity of USD notes over the last several years - apart from replacing those notes that get destroyed for various reasons.

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    I dont think the world has enough resources to support 1.4 billion Chinese living like 300 million Americans.

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    Quote Originally Posted by InExile View Post
    I dont think the world has enough resources to support 1.4 billion Chinese living like 300 million Americans.
    Therein lies the big question. But does China have to have US's GDP/capita? I suggest no. All they need to do is achieve a quarter of US's GDP/capita and they are top dog, which is what they want.

    But then again to answer your question directly, does the world have the resources to feed China to a quarter of US's GDP/capita? Well, if you had asked me 10 years ago i would have said no. But as it turns out, everyone is happy to sell their lives for China's expansion. The world's most industrialised countries will stagnate or even shrink whilst China booms.

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    zinja,

    long-term economic forecasting is always very tricky, because you need to include things such as demographics.

    in terms of demographics, china has a considerably worse long-term outlook than the US. overall population will stagnate or even shrink somewhat, while the population will rapidly age.

    and as the chinese government becomes more receptive to the people, this will inevitably mean an increase in the welfare state. meanwhile, the US population will continue to grow at a relatively fast pace (for the post-industrial world). estimates right now being by 2050-2075, the US will have half the population of china vice the roughly 25% today.

    so in terms of relative economic size, i don't think china will dramatically exceed the US, either now or even in the future.
    There is a cult of ignorance in the United States, and there has always been. The strain of anti-intellectualism has been a constant thread winding its way through our political and cultural life, nurtured by the false notion that democracy means that "My ignorance is just as good as your knowledge."- Isaac Asimov

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    In terms of productivity (or GDP), I would take 1 city dweller over 3 farmers from western China, anyday.

    We'll see an older, wiser and more productive China. There is no point of having 1 billion young uneducated peasants.



    Quote Originally Posted by astralis View Post
    zinja,

    long-term economic forecasting is always very tricky, because you need to include things such as demographics.

    in terms of demographics, china has a considerably worse long-term outlook than the US. overall population will stagnate or even shrink somewhat, while the population will rapidly age.

    and as the chinese government becomes more receptive to the people, this will inevitably mean an increase in the welfare state. meanwhile, the US population will continue to grow at a relatively fast pace (for the post-industrial world). estimates right now being by 2050-2075, the US will have half the population of china vice the roughly 25% today.

    so in terms of relative economic size, i don't think china will dramatically exceed the US, either now or even in the future.

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    cdude,

    in terms of productivity (or GDP), I would take 1 city dweller over 3 farmers from western China, anyday.

    We'll see an older, wiser and more productive China. There is no point of having 1 billion young uneducated peasants.
    sure, of course that's better. this is actually why i think the propensity for chinese/US sword-rattling will probably peak in the next 5-15 years-- a wealthier but aging population will not be so enthusiastic about using military force.

    also, china will start realizing that its economic growth can't go on forever. this recession already gave them a first warning that export-led growth has its downsides, as well. in short, china will become stronger vs the US on absolute terms, but in relative terms 1.) not as much as she thinks, and 2.) it will have less meaning.
    There is a cult of ignorance in the United States, and there has always been. The strain of anti-intellectualism has been a constant thread winding its way through our political and cultural life, nurtured by the false notion that democracy means that "My ignorance is just as good as your knowledge."- Isaac Asimov

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    Quote Originally Posted by cdude View Post
    In terms of productivity (or GDP), I would take 1 city dweller over 3 farmers from western China, anyday.

    We'll see an older, wiser and more productive China. There is no point of having 1 billion young uneducated peasants.
    Depends on what kind of farmers you're talking about. Peasant farmers, yes. Their productivity is low. American farmers, then we're talking a whole different ball game. China needs to mechanize farming to drive down food prices and release more workers to make up for the aging population. Japan's farm lobby resisted large scale industrial farms. Ever seen food prices in Japan?
    "Only Nixon can go to China." -- Old Vulcan proverb.

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    Quote Originally Posted by gunnut View Post
    Depends on what kind of farmers you're talking about. Peasant farmers, yes. Their productivity is low. American farmers, then we're talking a whole different ball game. China needs to mechanize farming to drive down food prices and release more workers to make up for the aging population. Japan's farm lobby resisted large scale industrial farms. Ever seen food prices in Japan?
    Of course I meant to compare college educated city dwellers to majority of the Chinese farmers. The hope is that one day China will have a farming industry like that in France.

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    Official Thread Jacker Senior Contributor gunnut's Avatar
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    Quote Originally Posted by cdude View Post
    Of course I meant to compare college educated city dwellers to majority of the Chinese farmers. The hope is that one day China will have a farming industry like that in France.
    Oh no...you do not want to have French style farming industry. You want American style farming industry. French is like Japanese. They are focused on protecting (subsidizing) family farmers and the tradition of farming. That makes them very inefficient and expensive.
    "Only Nixon can go to China." -- Old Vulcan proverb.

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    Quote Originally Posted by astralis View Post
    zinja,

    long-term economic forecasting is always very tricky, because you need to include things such as demographics.

    in terms of demographics, china has a considerably worse long-term outlook than the US. overall population will stagnate or even shrink somewhat, while the population will rapidly age.

    and as the chinese government becomes more receptive to the people, this will inevitably mean an increase in the welfare state. meanwhile, the US population will continue to grow at a relatively fast pace (for the post-industrial world). estimates right now being by 2050-2075, the US will have half the population of china vice the roughly 25% today.

    so in terms of relative economic size, i don't think china will dramatically exceed the US, either now or even in the future.
    Demographics can affect a countries finances (balance sheet structure) but it has less impact on the nation's output (GDP). An aging population will only mean more being spent on the aging populace but the important thing is its money being spent all the same, thus promoting GDP. The negative impact to the nation would be if the nation is cash straped they will go into deficits but GDP will still grow (eg US).

    Secondly Astralis, do not make the mistake of comparing free marketeering democracies with command economies, there is a huge difference. The notiong that some day the Chinese are going to revolt against the gvt as they become more empowered to me is too simplistic and too early to be considered in the forecastable future. From Zimbabwe in the south to Russia in the north i think we have seen that as long as a gvt has a strong grip the military and its security apparatus, they can pretty much fend off any disent.

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    Quote Originally Posted by gunnut View Post
    Oh no...you do not want to have French style farming industry. You want American style farming industry. French is like Japanese. They are focused on protecting (subsidizing) family farmers and the tradition of farming. That makes them very inefficient and expensive.
    I don't know. You cannot have the American style farming in China in like 100 years because of the sheer number of farmers in China now.

    I am not an expert in farming. But I watched Food Inc, a fantastic documentary. American farmers are subsidized through cheap petroleum, and heavy use of antibiotics (not allowed in other countries).

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    Quote Originally Posted by astralis View Post
    cdude,



    sure, of course that's better. this is actually why i think the propensity for chinese/US sword-rattling will probably peak in the next 5-15 years-- a wealthier but aging population will not be so enthusiastic about using military force.

    also, china will start realizing that its economic growth can't go on forever. this recession already gave them a first warning that export-led growth has its downsides, as well. in short, china will become stronger vs the US on absolute terms, but in relative terms 1.) not as much as [B]she[\B] thinks, and 2.) it will have less meaning.
    Exactly, not a lot of people in China are cheering for this "milestone". Well, now it's easier to calculate the productivity gap between China and Japan, roughly equal to the ratio of the populations. And I'd like to know who she is.

    And I agree with an earlier post that long term economic forecasts are highly unreliable. Especially for countries like China.

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    Quote Originally Posted by cdude View Post
    I don't know. You cannot have the American style farming in China in like 100 years because of the sheer number of farmers in China now.

    I am not an expert in farming. But I watched Food Inc, a fantastic documentary. American farmers are subsidized through cheap petroleum, and heavy use of antibiotics (not allowed in other countries).
    We didn't industrialize our farming overnight. It took decades. About 30% of our population at the beginning of the 20th century were farmers. Now we have less than 3%.

    As far as subsidies go, China can subsidize farmers too. France does. There's something in the EU called common agricultural policy or something like that. It artificially inflates the food prices because that's how small time farmers could survive in an industrial age.
    "Only Nixon can go to China." -- Old Vulcan proverb.

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    Secondly Astralis, do not make the mistake of comparing free marketeering democracies with command economies,

    Even if Comrade Commissar Obama is the newly appointed General Secretary of the Democratic Party, it is still not nice to call US a command economy
    the misery of being exploited by capitalists is nothing compared to the misery of not being exploited at all -- Joan Robinson

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