Will India and China rise in the wake of a failing American empire?

[Brutha]

If you invest with China, isn't that indirectly linked to USA? If the USA couldn't pay back to China, what would happen to investments in China?

China isn't dependent on the USA paying the money back.

In 1950 China and Taiwan were on essentially equal economic footings on a per capita basis.

Why don't you look at the data before making statements like that?
The claim is simply wrong.
In 1950 Taiwan had 1304$ GDP per capita while China had 394$.

Taiwan had more than three times the per capita GDP than China.

Till 1977 China had an ineffective economic policy. Their leader visited Singapore and found that the Singaporian economy went great.
China changed their economic policy and increased their per capita GDP by a factor of ten from 1977 to 2010.

We had a glimpse, back in 2008, when we elected Obama. That was impressive. And then everyone dispersed. That was partially Obama's fault; he should have kept the apparatus in play and empowered it to push thought at a grassroots level.

Keeping the apparatus in play would have made it a lot harder for Obama to achieve his policy goal as those goals differ from the goal of the apparatus.
Obama was intelligent enough to tell people what they wanted to hear.

Chinese government think tank have warned that the country's real estate bubble is getting worse, with property prices in major cities overvalued by as much as 70 per cent.

So what? Ordinary Chinese who want to buy housing have problems with the high property prices. Government actions that intend to lower the property prices makes sense.

[Bliss Sage]

I just wanted to say that I have found ALG's posts interesting and primarily with a neutral tone, but from the start there has been emotional resistance on the part of some Americans (I guess) here to the idea of the U.S. going into decline.

As someone who understands economics at the level of -10 on a scale of 1-10, I appreciated ALG's explanations, although I still really don't understand any of this:

starting with the concept of spending money you don't have...and ending with the concept of a country being $14,000,000,000,000 in debt being the richest country in the world

Economics, or whatever this topic is, looks like a circus from what I can understand. Simply because if I go to my bank account and there is $0 in it, it's physically impossible to spend 0. And that's just how simple it is to me.

Someone will now introduce the concept of borrowing - but living on borrowed money is the opposite of wealth.

Anyway, continue

[JSB]

China will definitely rise as the US declines. Many Americans are unhappy that their country is declining (I know I am), but honestly, it's our own damn fault.

The US held a huge lead in industrial output over the rest of the world, and it became complacent.

The US auto industry has been mismanaged to the point of incompetence, the government has not funded needed improvements or even basic maintenance of the nation's infrastructure, the country's public education system is an embarrassment, US fiscal policy has been a disaster for at least the past 30 years, we have an idiotic energy policy that makes our economy dependent on Middle Eastern despots, we invest huge amounts of blood and treasure trying to maintain '"stability" and further our vital strategic interests around the world, and Wall Street has been focused primarily on next-quarter profits rather than long term health of companies.

Congress is now owned by corporate and monied special interests; they do not for the most part enact the will of the people --- they enact the will of their largest campiagn contributors. We are seeing a return to the 19th century Gilded Age.

Now, I feel very sorry for the 99% of the people in this country who are going to suffer from this economic decline, especially since the 1% who continue to benefit and prosper regardless of what the nation's economy does are rigging the system for their own benefit.

Then again, if we as a nation had demanded accountability and honesty from our elected officials, we might not be in such a deep mess. I find that Americans, on average, seem to keep themselves willfully ignorant of geopolitics, global economics, and world history. I'm no expert in these fields, but every citizen should have at least a cursory understanding of how the world works, if only so they can vote their own interests, rather than what pundits and politicians tell them their interests are.

[JSB]

While China has great promise if it can get past its current economic bubbles (real estate values and bank loans/funding of "zombie companies" a la Japan's 1990's stimulus spending), India is in serious trouble.

The aquifers that support agriculture in the Punjab are being drained dry faster than expected, and agriculture in this highly productive region will fail drastically within the next 15 years. The resulting food and water crisis will put huge social and economic pressures on India.

China has huge looming water issues as well, but they are also investing heavily in desalination and irrigation infrastructures in order to get the water they need from the ocean, something India is not doing.

[SnerpGoodWord]

Originally Posted by Brutha

China isn't dependent on the USA paying the money back.

What they're dependent on is the Yuan-Dollar peg. If the peg is broken, the price of Chinese goods in the US and Europe doesn't justify dealing with the Chinese government and the backwards Chinese workforce, and Chinese industry grinds to a halt.

In the event that the US ever defaults on a T-bond, you can bet it will be a selective default, the Chinese will be on the side that doesn't get paid, and the Fed will take the opportunity to break the Yuan peg while they're at it. China is hugely dependent on a friendly US policy and made a gross error by buying T-bonds.

[Acting Like Godot]

Problem for India is that they can't get their act together concerning public infrastructure. The Indians' competitiveness lies in their math & IT prowess, and also they are fluent in English, the international language of commerce. But their lack of infrastructure hinders them.

You can easily find foreign expats who want to go to Hong Kong, Shanghai or Singapore. But nobody wants to go to Mumbai. It's a hardship posting. Even clean drinking water can be an issue.

[Acting Like Godot]

Originally Posted by SnerpGoodWord

In the event that the US ever defaults on a T-bond, you can bet it will be a selective default, the Chinese will be on the side that doesn't get paid.

If the US ever defaults on a T-bond, U.S banks will collapse again because US treasuries comprise most of their Tier 1 capital and that market value is going to plunge. And this time how will the U.S. government be able to bail them out? No country will lend the U.S. any more fresh money to bail these banks out.

China may be owed 900,000,000,000 dollars by the U.S., but don't forget who has, the world's largest foreign currency reserves. China. It's about 3,000,000,000,000 dollars.

Not only does China have the world's largest foreign currency reserves, it is overwhelmingly the leader in this area. Its foreign reserves are roughly the same as the foreign reserves of Japan, Russia, Saudi Arabia and the entire European Union put together.

A U.S. default is not inconceivable. In fact, it's exactly what Obama is working on to prevent, right now (critical deadline being 2nd August). U.S. politicians might just muck this up, sending shockwaves through the global financial system. If that happens, only China has the raw financial muscle to save the world. The EU is already too strained by the Greece situation.

[JSB]

Originally Posted by SnerpGoodWord

What they're dependent on is the Yuan-Dollar peg. If the peg is broken, the price of Chinese goods in the US and Europe doesn't justify dealing with the Chinese government and the backwards Chinese workforce, and Chinese industry grinds to a halt.

It's only a matter of time before the Chinese domestic market for Chiese produced goods is large enough to overshadow the foreign markets. Chinese industry may depend on cheap exports for now, but that won't be the case for long.

If China can weather it's economic "growing pains", ethnic unrest and environmental challenges, then it is well on its way to becoming the dominant global power of the 21st century.

Not that the US is on its way to 3rd world economic status, but the era of US dominance is coming to a swift end. Perhaps Americans can focus more on increasing the quality of life in this country, rather than being so obsessed with who's #1. Who cares? Develop a nation for the benefit of its citizens, and keep enough military strength needed to defend it and help support allies. Anything beyond that just turns into a pissing match.

[Acting Like Godot]

Originally Posted by Bliss Sage

Someone will now introduce the concept of borrowing - but living on borrowed money is the opposite of wealth.

Well, on a GDP per capita basis, the US still does well. Much better than China. The problem is the massive debt.

The US is basically like a high earner who spends beyond his means. He lives in a beautiful mansion but to pay for it, he has taken out a huge 50-year mortgage that drains his high salary every month.

China is more like a modest earner who built his own home. Thus he fully owns his own home and has no mortgage. Although he earns less, he saves much more. He even lends some excess cash to his friends like America, so as to earn some interest.

[SnerpGoodWord]

Originally Posted by JSB

It's only a matter of time before the Chinese domestic market for Chiese produced goods is large enough to overshadow the foreign markets. Chinese industry may depend on cheap exports for now, but that won't be the case for long.

I think this is a very weak thesis economically - how much domestic market can the Chinese generate when the per capita production is only $7,500? Or put another way, will a subsistence rice farmer buy an LCD TV?

The numbers indicate the Chinese domestic market is 5 parts myth for every 1 part reality.

[Bliss Sage]

Originally Posted by Acting Like Godot

China is more like a modest earner who built his own home. Thus he fully owns his own home and has no mortgage. Although he earns less, he saves much more. He even lends some excess cash to his friends like America, so as to earn some interest.

THAT I understand, because that's how I live.

Here's something we missed in NYC. The debt clock . Did you see it when you were there?

America loves debt! — RT

It's a short report, actually, on this very subject - and they mention China too. They show the debt clock in the beginning and again at the end...going up and up and up...

[wolfgang]

Originally Posted by Acting Like Godot

Well, on a GDP per capita basis, the US still does well. Much better than China. The problem is the massive debt.

The US is basically like a high earner who spends beyond his means. He lives in a beautiful mansion but to pay for it, he has taken out a huge 50-year mortgage that drains his high salary every month.

China is more like a modest earner who built his own home. Thus he fully owns his own home and has no mortgage. Although he earns less, he saves much more. He even lends some excess cash to his friends like America, so as to earn some interest.

Is China spending any money on infrastructure to support their aging population?

Wouldn't saving too much without spending be problematic too? Like an Ebenezer Scrooge?

[JSB]

Subsistence rice farmers will in large part remain subsistence rice farmers, unless they move to the city and get a factory job as a sweatshop wage-slave. They are not the market for consumer goods; the growing Chinese middle (and upper) class is.

300 to 400 million Chinese will live comparatively wealthy 1st-world lifestyles; their 1 billion less fortunate compatriots working on the farm or on the factory floor will remain poor (though somewhat less poor than today).

Originally Posted by SnerpGoodWord

I think this is a very weak thesis economically - how much domestic market can the Chinese generate when the per capita production is only $7,500? Or put another way, will a subsistence rice farmer buy an LCD TV?

The numbers indicate the Chinese domestic market is 5 parts myth for every 1 part reality.

[SnerpGoodWord]

Originally Posted by JSB

Subsistence rice farmers will in large part remain subsistence rice farmers, unless they move to a city and get a factory job as a sweatshop wage-slave. They are not the market for consumer goods; the growing Chinese middle (and upper) class is.

300 to 400 million Chinese will live comparatively wealthy 1st-world lifestyles; their unlucky compatriots on the farm or on the factory floor will remain poor (though somewhat less poor than today).

History shows that this doesn't work. If you want to keep the farming peasants down, you have to keep nearly everyone down to prevent jealousy (and thus revolution) from spreading. As such, communist systems can support only a very small wealthy class. That's why Russia, Cuba etc. were never able to create an (sub)urban middle class despite moving large numbers of former farmers to urban areas.

[ShoeDiva]

I think in the next 10 years China and to a lesser extent India will continue to rise to SuperPower.
US politics of the last 30 years have been designed to benefit Corporations and Big Businesses, which result in:
Global Economy,
decline in small business
Elimination most low skill manufacturing jobs
Income Gap between upper and middle class.
Increase in Oversea Tax Havens which cost the US trillions of tax dollars
Greater Corporate influence in politics
Reduced Democracy

Corporations will continue to expand and buyout or eliminate small business while taking advantage of oversea tax havens which will continue to hurt job creation and gross revenue for the US.

CHina, Russia and India on the otherhand will continue to grow like the US did after WW2.

[Acting Like Godot]

Originally Posted by SnerpGoodWord

I think this is a very weak thesis economically - how much domestic market can the Chinese generate when the per capita production is only $7,500? Or put another way, will a subsistence rice farmer buy an LCD TV?

The numbers indicate the Chinese domestic market is 5 parts myth for every 1 part reality.

It's the scale.

China has a population of 1.3 billion people. Even if only 1 out of 20 of them will buy an LCD tv, that will be 65 million TV sets sold. If you are in the business of selling TVs , you will be salivating now.

The other way to look at it is that China's population is about 4 point something times larger than the US population. Even if the average Chinese consumes 4 to 5 times less than the average American, that would just put the domestic consumption of the two countries roughly on par.

And furthermore, the Chinese GDP per capita is rising every year.

[Acting Like Godot]

Originally Posted by wolfgang

Wouldn't saving too much without spending be problematic too? Like an Ebenezer Scrooge?

They spend a lot on building their infrastructure.

One of the things they've been working on is a super-advanced bullet train system that will link their major cities together, so you can travel hundreds of miles really fast. And they keep building new cities too.

(India should do the same, but the Indian government is delayed by it's own bureaucratic red tape and the politicking between different factions).

[rawxstasy]

Originally Posted by Acting Like Godot

They spend a lot on building their infrastructure.

One of the things they've been working on is a super-advanced bullet train system that will link their major cities together, so you can travel hundreds of miles really fast. And they keep building new cities too.

(India should do the same, but the Indian government is delayed by it's own bureaucratic red tape and the politicking between different factions).

This bullet train is already operating in several cities. My ex just took a trip to Shanghai. Turned a four hour trip into 1/2 hour.

[Brutha]

If the peg is broken, the price of Chinese goods in the US and Europe doesn't justify dealing with the Chinese government and the backwards Chinese workforce, and Chinese industry grinds to a halt.

If investors would think that the Chinese industry grinds to a halt the Yuan would fall in value enough to make the products competitive again.

Moving production is hard. Factories are expensive. You don't relocate a factory in a single year because of changing exchange rates.

CHina, Russia and India on the otherhand will continue to grow like the US did after WW2.

I'm not so sure about Russia. Besides organised crime and natural resources Russia doesn't export much.

If you want to keep the farming peasants down, you have to keep nearly everyone down to prevent jealousy (and thus revolution) from spreading.

No, China's policies over the last decades didn't try to keep the rich down.

The Chinese like the way their government works more than the US citizens do.
You don't see a revolution in the US even when the inflation adjusted wage of the lowest ten percent went down over the last three decades.

[srikant]

I dont know about economics. But i can say for sure that India is going to advance leaps and bounds in education and technology. The competition is becoming so severe here. Hell The MBA entrance exams(IIM) and engineering entrance exams(IIT) are the toughest in the world . More and more competition ensures that year after year smarter breed of people are generated from the universities, industries.


Plus there is a cultural thing. South Indians are totally committed to their work with no particular adherence towards monetary gains. North Indians are highly succesful in business and the tradition continues with future generations.

The india that is now will be a lot smarter by 2050 and hence economically stronger

[Reefs]

Originally Posted by Bliss Sage

I just wanted to say that I have found ALG's posts interesting and primarily with a neutral tone, but from the start there has been emotional resistance on the part of some Americans (I guess) here to the idea of the U.S. going into decline.

As someone who understands economics at the level of -10 on a scale of 1-10, I appreciated ALG's explanations, although I still really don't understand any of this:

starting with the concept of spending money you don't have...and ending with the concept of a country being $14,000,000,000,000 in debt being the richest country in the world

It's ideas that make the economic world go round. And I don't see any new ideas coming from China (so far). If that doesn't change in the future, the US will always top China, no matter what the numbers say.

The US is just better at applying LOA. It's a winner mentality here and a kind of loser mentality over there. You can't be on the the leading edge by being a copy cat. You always need someone who is ahead of you where you can copy from.

So all this throwing around of numbers is just smoke and mirrors. Who knows how those numbers are put together? It's all hearsay.

And it's not only skyscrapers in Shanghai. Who has the guts and the time to take a longer trip through China will see skyscrapers in every major city (of which there are hundreds!!).

[Brutha]

The US is just better at applying LOA. It's a winner mentality here and a kind of loser mentality over there. You can't be on the the leading edge by being a copy cat. You always need someone who is ahead of you where you can copy from.

Don't underestimate the patents that get registered in China. There at the moment in the process of matching the output of the Germany (the European country that filles the most patents).

Niall Ferguson: The 6 killer apps of prosperity | Video on TED.com provides some good perspective.