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

[montgomery]

Hahahahahahaha! Damn! Lol. Jeez, can't stop laughing. This has to be the QOTD.

Understand what I said that made you laugh as my submission that China is moving toward capitalism. And of course nobody disagrees with that. My mention of the happiest countries in the world is a reference to socially responsible capitalism which is something quite different from the US model.

https://www.forbes.com/sites/duncanm.../#54848c573e91

This one is one of several and is the opinion of Forbes.

Hahahahahahaha!

[Oracle]

Understand what I said that made you laugh as my submission that China is moving toward capitalism. And of course nobody disagrees with that. My mention of the happiest countries in the world is a reference to socially responsible capitalism which is something quite different from the US model.

https://www.forbes.com/sites/duncanm.../#54848c573e91

This one is one of several and is the opinion of Forbes.

Freyr has already replied. Rich Chinese are abandoning China for western countries, and that includes the country you come from, Canada (?).

[Bigfella]

Fwiw, I was a participant on the 'Supplyside forum' for about ten years and so if you have an interest in debating 'trickle down' or 'voodoo' economics then I'm your boy.

So allow me to initiate something here: Point 'B' on the Laffer curve is somewhere close to 80%.

An introduction for you: https://www.thebalance.com/what-is-t...nation-3305566

Can I just acknowledge this as one of the funniest posts I can ever remember on WAB. Misplaced self confidence is a wonder to behold. Lecturing the Colonel on military matters is funny enough, but this is really special. I hope our new friend hangs around long enough to understand what a complete goose he has made of himself.

In the meantime I look forward to Buck getting set straight on the Civil War, Asty being told all about US defence policy, Gunny copping a solid lecture on K pop and hurricane preparedness, Oracle being told a few things about Virat Kohli's batting technique and me being corrected about watching Aussie Rules at the MCG (or Vietnam War history).

Can we please keep this guy! he is the best entertainment we have had here for years.

[Freyr]

GDP mean absolutely nothing if your nation got crushed by nature disaster !

Outside of the state apparatus only uneducated people think its important

[Inst]

How did I end up subscribing to this thread?

The biggest problem for China now isn't the economy, as they've already overtaken the US in PPP terms (implying that with some currency voodoo they can do so in real terms), but the technology. China doesn't have a leading-edge semiconductor industry, Chinese R&D hit a disappointing 2.18% this year, and while China is dominant in some industries, it's not enough.

Likewise, the education level of the Chinese workforce is truly appalling. While the junior-high educations of most Chinese might have been sufficient for the former manufacturing / export economy, it's insufficient for the Chinese to lead technologically in a way commensurate with its wealth.

As of right now, I think it's worthwhile to stop looking at Chinese GDP numbers. We know what they are, they're crap, and we know they'll get worse. The numbers to look at, instead, are total debt levels, which reflect excessive capital accumulation that imposes a drag on the economy, and total R&D spending. If the total debt levels are beginning to drop, as they have at some points recently, the Chinese economy gets healthier as debt drag goes away and the government can then invest again in different projects. As an example of the effects of debt, BRI has stalled in some countries simply because the Chinese have run out of money.

Second, total R&D spending needs to rise to 2.5% soon. On PPP terms it might overtake the US within the next few years, but research infrastructure is often dollar denominated, meaning that PPP doesn't fully apply. Moreover, Chinese R&D is inefficient compared to US R&D, meaning that the Chinese have to spend more to get the same result.

[DOR]

How did I end up subscribing to this thread?

The biggest problem for China now isn't the economy, as they've already overtaken the US in PPP terms (implying that with some currency voodoo they can do so in real terms), but the technology. China doesn't have a leading-edge semiconductor industry, Chinese R&D hit a disappointing 2.18% this year, and while China is dominant in some industries, it's not enough.

Likewise, the education level of the Chinese workforce is truly appalling. While the junior-high educations of most Chinese might have been sufficient for the former manufacturing / export economy, it's insufficient for the Chinese to lead technologically in a way commensurate with its wealth.

As of right now, I think it's worthwhile to stop looking at Chinese GDP numbers. We know what they are, they're crap, and we know they'll get worse. The numbers to look at, instead, are total debt levels, which reflect excessive capital accumulation that imposes a drag on the economy, and total R&D spending. If the total debt levels are beginning to drop, as they have at some points recently, the Chinese economy gets healthier as debt drag goes away and the government can then invest again in different projects. As an example of the effects of debt, BRI has stalled in some countries simply because the Chinese have run out of money.

Second, total R&D spending needs to rise to 2.5% soon. On PPP terms it might overtake the US within the next few years, but research infrastructure is often dollar denominated, meaning that PPP doesn't fully apply. Moreover, Chinese R&D is inefficient compared to US R&D, meaning that the Chinese have to spend more to get the same result.

Nah, it ain't necessarily so.

PPP is garbage when it comes to the total size of the economy. There are a very, very few places it might be useful if used correctly (household buying power, for example), but when an economy is rather trade-oriented, PPP is useless. Trade is done in money, not theortical currency units.

GDP data is getting better, which is part of the reason (not all) why the growth figures are below 7% lately.

Common man education is the best in history, but that's not saying a whole lot. The number of significantly educated people, on the other hand, is very significant.

I wrote about China's debt here, if you're interested: https://eastasiapoliticseconomics.wordpress.com/

R&D isn't up to OECD standards, and probably won't be for a long time (except military use).

[montgomery]

Some facts to trump all the wishful thinking:

https://www.weforum.org/agenda/2016/...n-five-charts/

Both the IMF and the World Bank now rate China as the world’s largest economy based on Purchasing Power Parity (PPP), a measure that adjusts countries’ GDPs for differences in prices. In simple terms, this means that because your money stretches further in China than it would in the US, China’s GDP is adjusted upwards.

And it won’t be too long before China’s economy surpasses the US’s by other measures, too. The Centre for Economics and Business Research (Cebr) predicts it will happen in 2029.

[DOR]

Some facts to trump all the wishful thinking:

https://www.weforum.org/agenda/2016/...n-five-charts/

Did you read what I wrote about purchasing power parity?
Do you understand what it is, what it isn't, and how it can properly be used?

[Inst]

Well, recall that the Japanese had their currency adjusted by the Plaza Accord from around 3, then to 2, then to 1 hundred per USD. The Japanese export economy stalled out (plenty of help came from the Japanese refusal to kill their zombies) as a result, but there was no general economic collapse other than the end of the Bubble Era.

The effective implication is that RMB appreciation over the long-term (or short-term if the Chinese government chooses) can push China's GDP way closer to its PPP values, without causing economic collapse. It's similar to what's happening in some export economies in Asia; the Taiwanese have very high living standards, but they probably don't feel rich because of the weak NTD. Same, to a smaller extent, with the South Koreans.


====

As for the Chinese R&D system, part of it is that Chinese debt has gotten out of control, and probably needs a good recession (with Xi-ist shock absorbers, read: People's Armed Police) to clear it out. But if the debt levels weren't so high, the Chinese could have easily resorted to just dumping money to develop the R&D system.

The Chinese R&D spending, after all, is probably going to reach OECD averages by 2025 at latest. The bigger problem is the quality of R&D, i.e, whether researchers work in efficient organizations or are of high quality themselves. That's going to be a challenge to fix, but if the Chinese could have just headhunted skilled Americans, Europeans, and Japanese with deficit spending, that would have helped a lot.

Another positive sign is that the percent of Chinese youths enrolled in tertiary education reached 50%, I think, in 2016 or 2017. That implies that the education shortfall (people whose lives were disrupted by the Cultural Revolution, people who never had the chance for tertiary education because they were farmers) is slowly being addressed.

I would say, however, that Chinese adult education levels is a massive impediment for Chinese growth. China's birth rate is dropping, so efforts to address youth education primarily is going to affect a smaller portion of the workforce, so what you have are entire generations of people with educations more comparable to Sub-Saharan African states. Adult education / re-education should be more of a priority in China to reclaim productivity from people in their 30s and 40s.

[DOR]

The Plaza Accord has affected the Japanese economy for as long as the Great Depression affect the USA. The (mal)adjustments that were made are still hanging around.

Residential construction boomed briefly, then collapsed and still has not fully recovered.

Private sector pay post-oil shocks was rising an average of 5% a year (yen terms) for eight years to end-1985. From then to now, 0.7% p.a., with just eight quarters in 33 years where pay grew more than 4%.

The Government debt:GDP ratio was 70%; now it’s pushing 250%.

The Nikkei went from 12,000 in 1985 to almost 39,000 by the end of 1989, and hasn’t even seen 25,000 in about 28 years. In nominal terms, equities and urban land prices are back at their early 1980s levels. Both were pledged as collateral for bank loans. There’s a nice piece on this here: https://www.imf.org/~/media/Websites..._box14pdf.ashx

And, most devastating of all, five sustained periods of deep deflation over less than 35 years.


Having watched the Japanese blow up their economy at the request of the US Treasury Department, Beijing has oh-so-politely told Washington where it might relocate its international monetary policy. Suffice to say, it’s where the sun don’t shine…

[Inst]

Of course, we'll also note that in nominal terms, during the 1990s, the Japanese economy overtook the US economy in terms of per capita GDP.

Likewise, there are a multitude of reasons for Japan's prolonged lethargy, namely that they were never willing to kill the zombies and absorb the pain of such, as well as the aging Japanese population increasing the dependency ratio.

When you look at revisionist histories of the Japanese "Lost Decades", however, you'll note that Japanese living standards continued to improve after the Bubble Economy died, and that per capita GDP in nominal terms exceeded that of the United States during the 1990s.

===

I think the key effect of radical currency revaluation when you're undervalued by PPP standards is that your economic growth slows or halts. The export economy begins to crash due to high currency prices, and we can look at SK and Taiwan for examples where the opposite holds true; i.e, they're effective exporters with an undervalued currency by PPP standards.

On the other hand, as you've stated, PPP is useless when it comes to determining size of markets, the wealth of nations, and so on. While massive currency appreciation in China would be disastrous for real economic growth, it would grant China many advantages on a strategic front; with the stronger RMB, the Chinese could become more capable of foreign investment, hiring foreign experts, as well as present a wealthy consumer market that could displace the United States as "consumer of last resort".

Given the drawbacks of currency revaluation, the three questions become: whether, how, and when. I.e, should China revalue the RMB? Revaluing the RMB makes China less competitive economically, but more competitive strategically vs the United States. How should China revalue the RMB? China can revalue the RMB over a long period of time, or it can do so relatively quickly. And when should China revalue the RMB? Unlike previously, China is now the largest economy in PPP terms, but at the same time, it's not past the middle income trap and lacks the R&D complex it sees as crucial to escape the middle income trap.

[DOR]

Inst,

I’m not so big on revisionist histories. I like to do my own analysis.
So, I started here: Statistical Bureau, Ministry of Internal Affairs and Communications, Japan. www.Stat.go.jp

I quickly found an excel spreadsheet of monthly expenditures by households of two people or more. It covers 1981 to 2018. So, what’s the average nominal yen-terms change in household consumption expenditure?

Nominal % per annum _ _ _ _ _ 1986-2000 _ _ 2001-2018
HH consumption expenditure _ _ _ _ -0.1% _ _ _ _ -0.5%
Food _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ -0.5% _ _ _ _ _ -0.5%
Clothing & footwear _ _ _ _ _ _ _ _ -2.1% _ _ _ _ _ -1.7%
Medical care _ _ _ _ _ _ _ _ _ _ _ _ +1.1% _ _ _ _ _ +0.3%
Transport & Communications _ _ _ _ +2.2% _ _ _ _ _+1.4%
Education _ _ _ _ _ _ _ _ _ _ _ _ _ _ +0.7% _ _ _ _ +0.9%
Utilities _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ +0.4% _ _ _ _ -0.9% (greater energy efficiency)
Furnishings and furniture _ _ _ _ _ _ +1.3% _ _ _ _ +2.0%
Recreation and culture _ _ _ _ _ _ _ +0.7% _ _ _ _ -0.2%
https://www.stat.go.jp/english/data/kakei/156.html

= = = =

China doesn’t need appreciation to be able to invest abroad. It has all the hard currency it needs, US$4 trillion worth. The problem isn’t that they can’t afford to turn renminbi into greenbacks. The problem is that rapid appreciation would hit employment broadly and very hard.

[montgomery]

Inst,

I’m not so big on revisionist histories. I like to do my own analysis.
So, I started here: Statistical Bureau, Ministry of Internal Affairs and Communications, Japan. www.Stat.go.jp

I quickly found an excel spreadsheet of monthly expenditures by households of two people or more. It covers 1981 to 2018. So, what’s the average nominal yen-terms change in household consumption expenditure?

Nominal % per annum _ _ _ _ _ 1986-2000 _ _ 2001-2018
HH consumption expenditure _ _ _ _ -0.1% _ _ _ _ -0.5%
Food _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ -0.5% _ _ _ _ _ -0.5%
Clothing & footwear _ _ _ _ _ _ _ _ -2.1% _ _ _ _ _ -1.7%
Medical care _ _ _ _ _ _ _ _ _ _ _ _ +1.1% _ _ _ _ _ +0.3%
Transport & Communications _ _ _ _ +2.2% _ _ _ _ _+1.4%
Education _ _ _ _ _ _ _ _ _ _ _ _ _ _ +0.7% _ _ _ _ +0.9%
Utilities _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ +0.4% _ _ _ _ -0.9% (greater energy efficiency)
Furnishings and furniture _ _ _ _ _ _ +1.3% _ _ _ _ +2.0%
Recreation and culture _ _ _ _ _ _ _ +0.7% _ _ _ _ -0.2%
https://www.stat.go.jp/english/data/kakei/156.html

= = = =

China doesn’t need appreciation to be able to invest abroad. It has all the hard currency it needs, US$4 trillion worth. The problem isn’t that they can’t afford to turn renminbi into greenbacks. The problem is that rapid appreciation would hit employment broadly and very hard.

Don't look at this link: https://www.rt.com/news/455723-huawe...azon-eu-trump/
There are termites deployed there which can jump 2' right into your head.
So I'll just quote the point I found interesting:

Merkel on Huawei: Germany won't exclude 5G providers just because they come from China.

p.s. We really did/do need a Huawei thread. I wonder when I'll get the thread posting privilege?

[Freyr]

I love it when Economists pretend to save the world via a spreadsheet ..lol

[DOR]

I love it when Economists pretend to save the world via a spreadsheet ..lol

It must really suck to have nothing worthwhile to say in response to someone who’s thought about an issue for 30 years, done the research, and presented a coherent and fact-based description of what actually happened in the past.

And, despite all that, to still have to – just absolutely HAVE TO – respond.

Must really suck.