China will become the world's largest economy by the end of the year | Hacker News Reader

China will become the world's largest economy by the end of the year

economist.com

"So China, which had been forecast to overtake America in 2019 by the IMF, will be crowned the world's pre-eminent country by the end of this year according to The Economist’s calculations. The American Century ends, and the Pacific Century begins."

You can expect the Economist to tilt this way, but it feels a little over-eager and glib to me (even considering the source). Yes, by one important economic metric, China wins. So therefore, China is "crowned the world's pre-eminent country". (Who makes these crowns, anyway? Wait, let me guess -- they're made in China, but awarded by a London-based committee.)

We've done this one before. Hitchens (http://articles.chicagotribune.com/1990-06-17/entertainment/...) used to call it "Our Greece to their Rome" -- the wise British counselors would advise the Americans how to run their Empire. It's like the committee decided to trade in for someone else to advise.

And "the Pacific Century begins". What does this even mean? Is it just to goad page views and comments? "Crowning the Dragon"? Really? Why so eager to reach for that metaphor? Do we have to search around for something to put a crown on?

So there are a lot of interesting things that come with being the largest economy on the planet. Not the least of which is pricing power over the other economies. There is also the ability to project force. In a number of analyses of WWII what "won" it for the allies was the US economy, and the ability for that economy to out produce war material than the axis powers combined.

Not that we would, but should the US and China engage in endless WW2 style battles of attrition, the larger economy wins that engagement. Because at the end of the day the ability to replace assets trumps any initial tactical advantage.

A number of well respected economists have debated the 'reality' of the Chinese economy and the UN has tried to get a qualitative measure that avoids over reliance on government supplied numbers.

There is always the possibility that China will stumble again, unable to balance its form of governance against its population's outrage, but if it does not, well its going to be able to push around more people without being overly concerned about the US being able to pressure others to resist. The way that works is as follows.

Country A taunts country B, country C tells country D to push back on them or their relationship with C will be in jeopardy, maybe C tells D, E, F, and G to make a fuss. They comply because they are economically dependent on C. Country A backs down. B is grateful. But if country C taunts country B, and Country A doesn't have the influence to get anyone else to push back on that taunting. Country C gets its way. How those scenarios play out is very dependent on the relative sizes of Country A's economy and Country C's economy. Politicians are particularly afraid of biting the hand that trades with them.

> Not that we would, but should the US and China engage in endless WW2 style battles of attrition, the larger economy wins that engagement. Because at the end of the day the ability to replace assets trumps any initial tactical advantage.

I don't think it is quite this simple. You could argue that the country that can sustain the higher defense budget will win [1], which is actually the United States. Reason being that China's population is 4x that of the United States, so significant parts of GDP need to just go to keeping everyone alive.

[1] In the past; these days the US' technology superiority over China is so large that short-term budget changes still couldn't give China the edge.

In response to your footnote, this was an interesting quote I read about Germany in WW2 :

"Historians have generally thought of the Type XXI—along with other systems like the Me 262, V-1 and V-2 rockets, and the Tiger tank—as an example of Wunderwaffen, wonder weapons. Since 1945 many have fixated on the revolutionary military technologies that the Third Reich developed in the last two years of the war. The cultural impetus behind the concept, as implicitly or explicitly acknowledged by historians in the uneven and largely enthusiastic literature on the subject, was an irrational faith in technology to prevail in operationally or strategically complex and desperate situations. a conviction amounting to a disease, to which many in the Third Reich were prone in the latter years of the Second World War. To the extent that it shaped decision making, faith in the Wunderwaffen was a special, superficial kind of technological determinism, a confidence in the power of technology to prevail over the country’s strategic, operational, and doctrinal shortcomings"

From this: http://www.usnwc.edu/getattachment/dd165021-2812-40ba-847f-d...

When I read it, it reasonated with a lot of the narrative I hear in policy circles about China as a military power. The reasoning goes like this; The US as an insurmountable technological edge over China, todays wars are technology heavy, therefore the US has an insurmountable military edge over China.

Personally, I expect that reasoning to prevail until the Chinese are sending people to the Moon and getting them back alive. Such a situation will deny that China is just "re-using old soviet gear" and "they can't mount a complex technological development program" in one stroke (both arguments I hear from the 'paper tiger' camp). Interesting times.

I agree if you mean that US military technology is better than China's.

For technology in general, is that true? I don't know, but if you look at good journal articles on computer science topics, it seems like the US is loosing mojo, and big time.

For general tech, the rest of the world combined invests so much more than we do now. This is the cost of our military spending. On the other hand, if we didn't have the world's strongest military (we spend about 50% of all money spent on military in the world), then the US dollar would probably not be the reserve currency and our economy would greatly suffer. Complicated...

edit: the reason why we are losing mojo, my reasoning: in the 1970s the vast majority of ACM journal articles were from US citizens, AFAIR. Not the case today.

edit 2: re: US military preserving reserve status of US dollar: I got this from a recent interview with Katherine Austin Fitts (she was in the H. Bush administration) who I personally respect.

I actually don't think it's quite that simple either. In total war, that might be right, but I think any opposing non-democratic power only needs to maintain a force/budget large enough to cause enough damage that will lead to war fatigue within the democratic power. Our war tech may be far superior, but I highly doubt it's superior enough for a snap victory as seen against Iraq. China has demonstrated real anti-satellite capability, as well as significant theoretical anti-ship capability (DF-21), both of which would eliminate a large portion of the US's edge (which has not demonstrated how much of an edge it has without those technologies).

Even after the trudging warfare is done with, supposing the US did win decisively (which I'm a bit skeptical of), post-war financial and political costs would be quite significant as well.

According to this article, there's more to developing into a strong military power than just having a larger economy: https://medium.com/war-is-boring/8a12e8ef7edc

TL;DR:

- Much of the military might that Beijing buys every year gets directed inward and never projects externally.

- Even after decades of expensive rearmament, China is a paper dragon.

- The same demographic wave that has gifted China with an abundance of labor will soon also transform the country into the world’s biggest retirement home.

Edited: Added a few key points.

You are being reasonable and measured, which I appreciate. But I have to forcefully object.

I don't think these observations, which are obvious, and which have obvious rejoinders given nearby, move the conversation forward. Repeating them whenever some metric or other (and the metric in the article is cooked, by using purchasing power) exhibits a US/China crossover is just not interesting. Doing so in this bizarre horse-race style ("who is winning") is ridiculous and deserves to be condemned as intellectually vacuous.

What would it look like to actually move the conversation forward? Good question.

Maybe the actual cause for celebration should be lifting millions of Chinese out of poverty. (Exclusive of considerations relating to the US!). Or maybe the interesting phenomenon would be when Chinese start using their new purchasing power to get political influence over decisions affecting their lives.

Viewing this as some kind of horse race forces a mostly inherently-Chinese phenomenon (that we should all observe with interest and pleasure) into a perverse "I mostly care about this because it knocks me off my #1 rank." Which I feel is missing the point in a deep way.

That is certainly one way of looking at the situation, but it misses the point.

I claim that the Chinese politburo cares as much about "lifting millions of Chinese out of poverty" as the US Government cares about "reforming the campaign contribution process." What those two, apparently disjoint topics, have in common is that both are a threat to power of the people currently in power in the respective governments.

The whole 'crowning' or 'we're number 1' sort of stuff that you were asserting was so mystical and unnecessary is in fact, in the world policy arena, the only point. This point cannot possibly more clearly illustrated than the shenanigans going on in Ukraine at this very instant. Russia of five years ago would never have made as provocative move as they did had they not believed the US and its allies incapable of responding. Russia, in the form of Vladimir Putin, feels very much like someone who can get away with annexing a neighboring country for the same reasons that Hitler was ok with annexing his neighboring countries. The belief that the will to act would not overcome the potential cost of acting.

An emergent China will annex Taiwan and it will not be so that they can lift up the Taiwanese citizens, it will because they can, citizens be damned. They will also annex large regions of the border with India, same reasoning. They will do this, and potentially succeed in doing so, by virtue of their place as the pre-eminent economy on the planet. Defy them and they don't have to fire a shot to take out your economy, they just have to cut trade with your economy and blammo, recession if not depression time.

In grade school, the class doesn't get together and elect the class bully. The class bully takes that position by beating up or intimidating everyone else. Basically being the baddest actor in the set of possible actors. What the Economist alludes to with their pithy "Pacific Century" is that the China, as the largest economy, gets to be the boss. Not because they were elected, but because they can punish folks who don't toe the line, just as the US has repeatedly done to people over the last 50 years. I could give you lots of examples real or hypothesized, but the key is the weaker economy risks more in a showdown than the stronger one does, and that has been the basis for world governance and policy since 1948.

The one line summary of the Economist article is "When China's economy exceeds that of the US, China will be calling the policy shots on the world stage, not the US." It is that ability to shape world policy that will make them the new 'boss' not some imagined contest between horses.

My guess is that you should care in a deep way because China has a different opinion on what constitutes 'human rights' than the current world order does.

It's not just the US that is enforcing norms like the ones you mention. It will also be the rest of the world, and, we can hope, the citizens of China.

So, what you're saying is, it's like starcraft, and he who mines more minerals wins.

Yup. Or sheep, bricks, and wood if you're a Catan fan.

If we can officially crown a new era, it's the era of pat catchphrases and clickbait. "The Pacific Century" has a nice ring to it; it's memorable; it's a strong catchphrase. So it makes the cut, no matters its inanity. Even serious journalism, academic research, and industry white papers are coming under intense pressure to adopt the methods of punditry.

I'd say this is less about pageviews and comments, and more about acute awareness of hashtags. "The Pacific Century," "Crowning the Dragon," and other such phrases are conscious attempts to create hashtag-ready hooks for the article.

The Economist blog content tends to be pretty lightweight and casual, a little daily snack in between the weekly full-course meal of the print edition (whether or not you read it on paper).

I'm a bit torn. On the one hand, the fact that China was the world's biggest economy until 1890 wasn't very significant in terms of its influence on world history. I don't mean this in a Eurocentric way, but in terms of the fact that China stayed largely within its own borders and wasn't in intense technological competition with the West; the size of the economy was largely a function of its huge population, which remains somewhat true today.

On the other hand* population can't be the whole story, or India would have a similarly-sized economy. Chinese GDP per capita may lag behind the west, but there is no question that the country has profited hugely from becoming the modern 'workshop of the world.' These profits must be set against the negative externalities of chronic pollution and a increased internal political pressures, but it's impossible to ignore China's enormous strategic advantage in this area.

How they will leverage this is another question, as the country is facing an intense demographic squeeze that will leave it with a disproportionate number of elderly people within the next couple of decades, but without a strong social safety net or high levels of education. Obviously China's leaders have no intention of allowing the country to enter a Japanese-style economic stagnation, but how they will address that challenge is anyone's guess.

* Harry Truman once demanded that he be sent a one-armed economist who would supply him with one opinion instead of two.

In its defense, the Economist has been known for its handsome catchphrases since before the modern clickbait era began. Take their covers for example. I don't think they're bowing to pressure -- just doing what they do.

That's fair. I've been reading The Economist for quite awhile, and to your point, it's never short on clever catchphrases and headlines. I do, however, think the use of catchphrases within a text (as opposed to the headline) has been growing over the years. Especially in recent years. Not just in The Economist, but in general. To wit: the headline "Crowning the Dragon" feels very typically Economist; the catchphrase "The Pacific Century" feels more like a conscious attempt to coin a meme.

>Who makes these crowns, anyway?

Well, judging from foreign policy and media the Americans have made those crowns for themselves for the past 80+ years.

>And "the Pacific Century begins"

I guess what the "American century" used to mean: http://en.wikipedia.org/wiki/American_Century

> Yes, by one important economic metric, China wins.

I know you mean that a bit sarcastically, but some people really thing that way.

Don't we win too? If your business partner grows wealthier, isn't that good for you? I want all my business partners to become fabulously wealthy.

It is true that, when it comes to politics (which includes armed conflict), it's better if your enemy is poor.

This depends very much on who you're doing business with and how much you like them. You might not prefer that the slightly shady guy you're forced to do business with on occasion become a big-name mobster with a protection racket.

Absolutely!

By the way, having poor enemies and neighbors can be destabilizing as well. Think of Israel, or South Korea.

China also has nearly 3 times the USA's population, as well as significantly less land. They may be making more money, but they also have more people they have to divide it between. They're far less wealthy in that sense.

The US has more arable land. In terms of total land, China is the second largest contry in the world, behind only Russia.

The larger population might also mean more smart people to make even more money.

I wish i could actually read his article and not a review of it.

http://siteresources.worldbank.org/ICPINT/Resources/270056-1... is the paper they did the article from if that helps.

Maybe GP was referring to Christopher Hitchens' article "Our Greece to Their Rome", which appeared as chapter 1 in his book Blood, Class, and Nostalgia?

Even if not, I have to recommend the book. Like all early Hitchens, this is an occasionally dazzling and very entertaining book, written by someone with the same pedigree as the wits at the Economist, but with a lot more originality, and more interesting ideological commitments.

There are a few pages in the Amazon preview (http://www.amazon.com/Blood-Class-Empire-Anglo-American-Rela...). Also, I just saw this NYT review: http://www.nytimes.com/1990/06/24/books/a-discordant-intimac...

yes I was referring to that, thank you.

For a more nuanced discussion of the relative merits and drawbacks of PPP GDP (where China is about to become #1) vs nominal GDP (where China is not) see http://blogs.wsj.com/economics/2014/04/30/chinas-economy-sur...

tl;dr traditional GDP ignores stronger effects of cheaper local currency like China can pay its military less than US can, PPP GDP ignores weaker effects of cheaper local currency like China can't import foreign goods as cheaply as US can

Well, sitting here in China and observing its changes for 13 years so far, including the initial WTO membership rah-rah, I would counter much of the commentary here with the less obtuse statement that China is certainly the world's largest economy with some very interesting properties: (1) The government roughly controls all of the economic statistics, and thus roughly controls international perspective on the economy. (Foreign organizations are not legally allowed to conduct independent market research.) (2) The government roughly controls all the education and media, except small corners of the internet, and thus roughly controls domestic perspective on the economy. (3) Foreign banks are heavily restricted, for example from providing many business-critical account services. (Despite WTO related promises) (4) The government controls its own domestic settlement network, and apparently mandates its use for interbank payments. This nominally acts to preserve national privacy versus using standard international Visa/Mastercard and SWIFT networks while asserting strong control. (5) Currently, as detailed in my OHM2013 talk at http://www.scribd.com/doc/215642587 the government is also aggressively asserting the RMB as a regional reserve currency.

Preface: This is a rant...

============================

Thank fucking god.

The greatest distraction the United States has ever dealt with-- being the 'number one' economy. It makes me sick people have seen this as a sense of pride, or even as something to be "sad" about.

... It is too bad we've pissed away the opportunity, it didn't have to be like this...

It, for the United States, has done nothing but acted as a catalyst for systematic and perverse exploitation of our people and resources for gain of a few with "wealth." It has given the evil of the world a corruptible, unstoppable force to push their agendas.

Our democracy has proven to be much weaker than it's ruling sibling, 'crony-capitalism' or 'socialism for the wealthy' (whatever you want to call it).

Look at the amount of money we blow up in the desert fighting redneck farmers (that's what they are, they just speak a different language). Looking at the money we spend on death of outsiders, compared to helping the people of our own nation, should make anyone feel nauseated.

This is one step toward a less powerful United States, and dare I say a much better one. We'll still be the world's reserve currency for a while, but this is still a step to fixing the inherent systemic problems within the United States.

Economic power doesn't mean high quality of life, and shouldn't be a sense of pride, hopefully the nation begins to understand this. There's more to life than being exploited money.

C.R.E.A.M. -- Cash Rules Everything Around Me

> Economic power doesn't mean high quality of life, and shouldn't be a sense of pride, hopefully the nation begins to understand this. There's more to life than being exploited money.

That is the most common misconception. A large country like United States can not have high quality of life without economic power.

We'll still be the world's reserve currency for a while, but this is still a step to fixing the inherent systemic problems within the United States.

Unfortunately, being the world's reserve currency is the driver of our wars. Until the dollars for oil trade changes, we back our currency with a big gun.

Hmm.. IMO you might be confusing correlation and causation here.

You think the geopolitical relationship between us and OPEC countries would be different if only we paid in Euros?

What will move the needle on this is simply not buying their oil. And that's precisicely what's happening.

Say what you want about fracking, I'd rather pull petroleum out of shale than buy it from Opec.

You think the geopolitical relationship between us and OPEC countries would be different if only we paid in Euros?

We invaded Iraq over that threat.

The problem I have with any reports of China's economy (GDP, inflation,...) is that fact that outsiders of the Chinese gov't do not know how doctored the numbers are. The Chinese could have been (and are still continuing) in cooking the books to achieve the #1 economy. It is one of those "if the number is bigger, it is better" kind of deals.

Could the US (and other countries) be doing something similar, absolutely. But China has been known for economical "miscalculations" and the fact that it is still a more-or-less communist run system.

Sure they may have the biggest number on paper, but I really don't think the US has anything to worry about.

On the one hand I don't trust Chinese numbers a lot, but they seem to be at least in the ball park to the actual numbers, and even that is a major achievement considering the size of the Chinese economy, its lack of technology in many parts and a bureaucracy which isn't exactly renowned for its "accuracy".

In general, if this "PPP" calculation shows China overtaking the US, this is probably happening in "PPP" terms. Doesn't mean they have more economic weight in the world, though.

The fact that US will become China's bitch sooner or later is a foregone conclusion. The question is when and how fast.

Present day US still remains a force to recon with. It still has an astronomical military budget. But it is also a debt ridden country who is stilling from the productive parts of its society and burning it off on the least productive people in society creative very perverse incentives which are exactly opposite of what happened in the 19th century.

And China is a modern utopia where everyone's creative potential is allowed to flourish. It has no major problems to overcome. No economic instability, ethnic conflict, pollution, food insecurity, corruption...

We'll all wish we lived there soon.

No soon, but very well it might be in near future. Actually China might have a better work visa policy than that of America down the line.

Being the worlds largest didn't make the USA's social problems go away. Why would China be any different?

You have no idea how better USA is on almost all parameters than many large countries like India or Brazil.

But not much better than china on those parameters?

(Having lived in both India, and the USA, I think I do know)

I don't really worry about the GDP too much.

What worries me is that in US, lawyers/sports/movie-stars are such a fashion that those who are good at STEM are called nerds in school, that many college students can not do basic math nowadays, while China produces 8M college students per year, most are trained well in STEM.

in the long run, STEM rules for the country, a strong country can not be built upon pop music and attorneys for too long, this is the real problem IMHO, the largest economy comes secondly.

not to mention, Hispanics will lead the popular votes soon due to their birth rate, but that's a separate issue and I'm off-topic.

The future here is gloomy, sadly, but it's normal when you zoom out the history timeline, strong countries come and go.

GDP PPP seems to be pretty useless for such comparisons. Nominal GDP should be used. According to the following three sources:

* International Monetary Fund,

* World Bank

* CIA World Factbook

the crown of the world's largest economy belongs to the European Union (and has belonged for some time now).

The EU isn't a state, though...

Honest question. Do they print a trillion dollars (equivalent) a year out of nothing?

I'd like to know the impact of printing paper money in the world's largest economy. In our case, we will know for sure in the next couple of years.

+1 I would like to know the answer to that question also.

BTW, does the fed reserve/government only create $1 trillion/year out of nothing? I thought it was more. I just finished reading "What has the Government Done with Our Money" (http://www.amazon.com/What-Government-Money-Percent-Dollar-e...) - a good read, but nothing new for anyone leaning towards Austrian Economics instead of fiat money.

"Will". Cute Americans.

These studies are really scewing with our(USA) world view. We used to be the country with the biggest GPD and highest middle class income. Now we have neither. At least we have the most pisioners and guns per capita. No one is going to take that away from us anytime soon.

> These studies are really scewing with our(USA) world view

The rest of the world is just fine with that. :P

sometimes i think the USA be better off it was split into different countries. Just sucks having massive federal laws that blanket the entire country even though conditions are way different.

But then you wouldn't want to check in on the democratic processes of 50+ different nations to tell if you have a dictatorship or something even worse on your continent.

You think the TSA is a lot of trouble now? Imagine fifty states trying to secure borders...

You think massive federal laws are annoying? Imagine what 50+ nations have to do in terms of bilateral treaties to keep minimal relations in trade, education, defense...

not really.. It'd be more like europe. Most of our states are the size and population of european countries anyways. California would be perfectly fine by itself.

Europe does have these problems all over the place. Some are kept in check by the EU which fulfills a lot of the functions of the US federal government. There are ramifications to opening borders for people and goods...

Just lift the USA immigration restrictions to Chinese, and the 'GPD' and middle classes will be yours in no time.

>Just life the USA immigration restrictions

I suppose the Republicans, being pro-life, will support it.

http://en.m.wikipedia.org/wiki/Muphry's_law

Well, USA still has world's biggest debt - that is something!

> and highest middle class income

At least before taxes.

Enjoy it while it lasts.

US will eventually have to raise taxes on poor and middle class - following in the EU's footsteps.

Big Ole Asterisk for this by the name of PPP (Purchasing Power Parity)

PPP is very useful to make comparisons about standards of living and affordability of different regions, but it's pretty much useless in measuring a nation's total economic output for global comparison.

While it's useful to say somebody making US$10k a year in China has the same real purchasing power as somebody making US$50k in the US and US$70k in Germany it's totally meaningless when comparing country's economies on a whole against each other.

China is still a very very long way away from overtaking the US or the EU (if you count that as a country which people seem to do) in actual real GDP.

This whole "revaluation" is some of the biggest bunch of click bait trolling I've ever seen. Appeals to the uneducated masses though I presume.

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