For the umpteenth time, China will not overtake the US economically

Anybody who was reading newspapers in the 1980s might remember the dire predictions of those times that Japan's economy would continue to grow faster than the United States' and overtake it in the very near future, now past.  The superior Japanese growth rate was ascribed to a superior way of doing business and the guidance of the Japanese Ministry of Finance in picking winners.

Then the Japanese real estate bubble burst in 1990, and Japan has had a few lost decades since.  The government tried everything to reignite growth, but all that happened was that government debt ran up.  Japan's GDP growth has averaged less than one percent per annum since 1993.

(Japan is a force for good in the world, and we are happy for and with the Japanese, because they are a culture that respects private property.)

Thirty years on from those predictions about Japan, it is now China that is supposed to overtake the United States economically in 2032.  Previous forecasts of when that might happen include 2014, 2016, 2018, 2024, and 2030.  China's economy will stall out before that can happen and for much the same reasons why Japan's economy stalled in 1990.

This graph shows GDP for the United States, China, and Japan from 1980 up to 2017, with a projection to 2030:

Note the stupendous divergence between the United States and Japan over the last three decades.  The U.S. economy is now almost three times larger than Japan's.  It doesn't matter that nobody predicted that that would happen.  China has come from a very low base due to the Mao years.  China's growth is slowing down, as the world is now saturated with the stuff that China makes.  China's share of world merchandise trade has been sitting at 12 percent for the last five years.  Just as that tailwind is dying, the Chinese are facing more headwinds from here.

Chinese coal production of four billion tons per annum has the energy content of 50 million barrels of oil per day.  One of the reasons why Chinese goods are so cheap is that Chinese energy is cheap.  Chinese academics have predicted that China's coal production will enter decline from 2020.  To stop their economy shrinking, the Chinese will be importing coal from then, possibly as much as 400 million tons per annum by 2030.  This equates to about a third of current world coal trade.  Chinese oil production started its decline in 2014.  By comparison, the United States is likely to have continuing growth in oil production thanks to the Permian Basin.

China has many other problems.  Grain and soybean imports are 15 percent of Chinese consumption.  If that stopped, due to a blockade, say, then China would have to turn vegetarian overnight.  The China we are competing with is three hundred million moderately well off in the coastal provinces and another billion quite poor peasants further inland.  The one billion are more of a drag on the Chinese economy than a help.  A lot of that four billion tons of coal per annum has to go to keeping them fed and clothed and warm.

China is also making life more difficult for foreign companies with operations there.  The assembly type of operations that China specializes in might move elsewhere.  There is a lot of latent potential for that sort of work in Vietnam and the Philippines.

David Archibald is the author of American Gripen: The Solution to the F-35 Nightmare.

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