In 2001 I wrote a book about the rivalry between the USA and the EU, entitled “Stars and Strife”. In that I recognised the first signs of emerging Asian strength in world affairs, concluding that “The UN will have to recognise the strength of numbers and force of arms point in the direction of the leading Asian countries playing a bigger role in world affairs as this century advances. As India, Pakistan and China start to flex their muscles,with the capacity to raise and sustain huge armies, and now with some nuclear capability, we have to recognise they will have more influence in the world.”
In 2005 I wrote an update, entitled “Superpower struggles: Mighty America, Faltering Europe, Rising Asia”. I stated in that ” In recent years the Chinese economy has grown at a staggering 9% per annum. It has already overtaken Italy to become the world’s sixth largest economy, and will soon pass the size of France and the UK at market exchange rates. By the next decade (2010 ) it will be larger than Germany, in third place, poised to overtake Japan. ”
The news came through in August 2010, just a couple of quarters into the new decade, that China had overtaken Japan’s GDP at market exchange rates. My forecasts now need updating. The UK Treasury forecast in 2005 said it would take China until 2015 to reach $5 trillion of output, a level they achieved in half the time. The West has been good at underestimating China.
The only comparative target for China to hit now remains the GDP of the USA, the world’s number one. At the end of 2009 the US GDP was around $14 trillion, far out of sight of China’s $5 trillion. However, if you assume China can grow for another ten years at the astonishing 9% average she has achieved in the last three decades, and if the USA grows at 2.5% a year on average ( a little below her historic average to allow for the problems created by the debt overhang), China overtakes the USA’s GDP level by 2020, without a further revaluation of her currency. Even if we allow for some slowing of China’s growth rate as she becomes richer, it will still be not much more than ten years from now that China will sport the world’s largest economy. This can also be speeded by some revaluation of the Chinese currency. When she reaches that goal she will still enjoy an average standard of living of around one quarter of the USA’s. There is no reason to suppose she runs out of growth when she reaches that point.
In 2005 I summed up the Chinese evolution by saying ” One day China will turn her new found economic power into military power as well. For the time being her success will be heavily concentrated in industrial products and product markets,and her main impact on the west will be felt in the rising commodity prices as Chinese demand surges. Unlike Jpapan, she will not remain neutral and lightly armed. As her economic success develops so too will her political and military might.”
The Chinese strategy rests on acquiring large commodity deposits and commodity production around the world, to fuel her factories and feed her population. It also is driven by the wish to emulate and surpass western technology in key areas. There is always someone willing to sell it to Chinese interests, a situation which will grow as the overborrowed West looks for easier ways to repay debt or cut their deficits.
China now uses 43% of the world’s steel output, imports 45% of the world’s iron ore, 39% of the world’s copper sales and 42% of the world’s cotton output. Her economy has a manufacturing sector which accounts for almost half the total economy, and is now dominant in many major areas of world trade. China is already the world’s largest exporter.
The West does not seem to have adjusted to the pace of China’s rise, or the speed and depth of her success. The West ignores the fact that in some ways China has a better tax and regulatory regime for new manufacturing than the older established centres in Europe and the USA. Governments should take heed and should understand how co-ordinated China’s strategy is. They seek control over raw materials, over production and over some market outlets. The Chinese government is determiend to raise domestic living standards and to power growth through international trade. The West needs to respond more quickly, more dramatically and more positively. The West is rapidly becoming uncompetitive in all too many areas of activity.