Chinese Economic Supremacy

It is just over the horizon but according to economists, China is expected to eclipse the United States' economy by 2045. These 1.3 billion citizens have now surpassed the United Kingdom as the fourth largest economy (in terms of GDP) in the world.

The Communist Party has transformed this once centrally planned economy into a free market with "socialist characteristics." Understandbly, we have to be quite impressed with the way they did over the last two decades. One biggest problem is that they are growing too fast and the gap between the rich and poor has become quite a serious issue with villages and towns attempting to revolt against the rich and influential.

Of course the Chinese renminbi is artificially low. While we do complain about the high exchange rate, we do have to note that the rate has been dropping slowly from 8.25-8.30 to near 8.00. The politicians complain about the trade imbalance but is it just because it is free market economics? More than half of all industrial goods are made in their factories. They have managed to secure almost $1 trillion in foreign reserves. With that amount of money, they could probably be at the same stage where the US was after the end of World War II where we had money to give out loans to war-torn countries.

People say that tax cuts and lower government spending (Bullsh*t!) is helping the economy. Higher government spending is more like it, especially under the current Republican administration. But perhaps those people need to look pass that and thank our foreign lenders instead. They have been keeping the US economy afloat so that consumers (like you and me) can keep buying more imports, resulting in higher trade deficits. US economic prosperity will dry up when foreign creditors in Japan, China, and Europe start to stop lending or start to reduce the amount of debt they can let the US borrow.

Oh but wait, they wouldn't want the US to fall into a depression or an economic calamity! It would affect the whole world economy. We need to keep the US floating. You have to wonder whether the world will continue to appreciate US superiority in the next 40-50 years. It is not being unpatriotic, but economic realism.

Can foreign lenders continue to finance US' $250-300 billion deficits for each consecutive year? Forget about Bush's pledge to cut the deficit in half. It is complete nonsense to continue to repeat this promise since the Congress decides on the budget blueprint, and all Bush can do is to threaten to veto the spending bills (but he hasn't vetoed any yet). By the time Bush will leave office, our national debt will reach $9 trillion! But really, go back to China and Japan. These two Asian countries are the largest foreign holders of US Treasury bonds.

China and other countries in Asia will continue to finance the US' debt system until they are strong enough to prosper on their own. They will just slowly start to sell US bonds to stabilise their own financial systems. These creditor nations hold the upper hand over us.

This is why the US must be wary of insulting China, Japan, or any other country that holds a substantial amount of US Treasury bonds. Avoiding a global meltdown is in everyone's interests but you cannot maintain such propserity forever. Soon, the cycle needs to change to balance itself and start up again. The impact may be too much for America to endure.

The Independent - America meets the new superpower

Historical - The Nation - Debtor Nation