The Collapse of China Collapse Theory

[Cyberian]

This is what Pakistan, Hindustan and Bangladesh need to be prosperous.

"The Chinese economy maintained an annual growth rate of 10.5 percent and an inflation rate of 3 percent from 2003 to 2012, ..."

Source: The Collapse of China Collapse Theory

Anything that falls below the above will not change the status of Pakistan, Hindustan and Bangladesh.

 

[Aepsilons]

Chinese GDP growth rate is about 8%, that is twice of USA which is 4%. And it's also evident that China is growing economy and will become next super power and will surpass usa very soon.

I would re-assess the definition of "very soon". The level of development of the United States, as a whole, is not in equilibrium with that of China. The United States' GDP per capita is at $54,000, whereas in China, theirs is a mere $7000. Considering the high level of software development and pre-eminence of service oriented economy and with the re-invigoration of US manufacturing and industry, the United States shows a vibrancy that very few highly industrialized economies can manifest. The United States' GDP stands at $17.25 Trillion, and expected to grow an additional $500 Billion by the end of this year alone.

No doubt the Chinese economy is growing a reasonable rate , however, in regards to surpassing US per capita and level of development, nay, that will take quite some time to even be at parity with that of the United States.

@LeveragedBuyout , perhaps you can add some more on US strengths and weaknesses in regards to manufacturing and development. Sadly my strengths are not in economic theory or developing markets. Thanks, Sir.

 

[LeveragedBuyout]

I would re-assess the definition of "very soon". The level of development of the United States, as a whole, is not in equilibrium with that of China. The United States' GDP per capita is at $54,000, whereas in China, theirs is a mere $7000. Considering the high level of software development and pre-eminence of service oriented economy and with the re-invigoration of US manufacturing and industry, the United States shows a vibrancy that very few highly industrialized economies can manifest. The United States' GDP stands at $17.25 Trillion, and expected to grow an additional $500 Billion by then of this year alone.

No doubt the Chinese economy is growing a reasonable rate , however, in regards to surpassing US per capita and level of development, nay, that will take quite some time to even be at parity with that of the United States.

@LeveragedBuyout , perhaps you can add some more on US strengths and weaknesses in regards to manufacturing and development. Sadly my strengths are not in economic theory or developing markets. Thanks, Sir.

To be honest, I'm not an economist either, but I'll do my best. Since it's a Friday night, please forgive me for quoting myself from other threads, but I find that we're beginning to cover this ground quite thoroughly. The summary version: on an absolute GDP basis, China's dominance is inevitable, but on a GDP per capita basis, not so much.

1) Demographics

Already discussed, I won't rehash here. China's demographics are not good, we all agree. What remains to be seen is if China can reverse the trend. Many have been able to sharply curtail population growth, even the Islamic Republic of Iran, but virtually no one has been able to increase population growth back above replacement once total fertility rates fall below 2.1. Many have tried, virtually all have failed, but China continues to surprise, so who knows.

Meanwhile, the US, through a combination of immigration and focus on families, has a healthier TFR of 2.01, but even we are struggling with this issue (as are are developed economies).

2) The state of the relative economies

We have discussed this before as well, so I will just post a link to Chinese Economy News & Updates | Page 261 which is a good summary of the situation. China has done a tremendously good job implementing the Japan/Asian Tigers model of intensive investment and export-led growth, but that stage of development is coming to an end. The proof? @Raphael just posted a great thread Conference Board Study: Productivity goes negative as China slips towards middle-income trap about declining Chinese TFP. China will change because China must change; if it does not, China could suffer a Japanese- or European-style stagnant period due to its growing NPL issues. (As detailed in the link I posted in the beginning of this paragraph).

The United States has just recovered from its financial crisis. Banking crises are known to be the most vicious and long-lasting, and this one was no different. That said, we learned hard lessons from Japan, and put them to good use to prevent ourselves from becoming another Japan and losing two decades to a listless, deflationary economy. The United States has recovered from many harsh downturns, but it's an open question whether we have the energy and will to do so again. The US has undergone many mini-revolutions in order to get its economy back on track.

Some smart guy said:
"The US was down and out in the 1970s. Then the successive financial revolution, re-engineering revolution, and internet revolution re-ignited American growth, and the distance between the US and other industrialized nations started growing again. In the 1970s, China was an economic dwarf. Think about how much can change in 50 years, and then examine if you can still be confident in your assumptions about the next 50."

Source: The diplomatic battle between China and Japan is taking a Latin American road trip | Page 2

Unlike China, these revolutions are not planned, but rather are the macro results of individual innovation, and the discipline that invisible hand of the market enforces. Some wonder how long our "luck" can last, but it is rather the innovation that springs from the chaos of competition that provides us with these opportunities to change. That is the strength of the US, and potentially the weakness of China. China has smart leaders--today. China's leaders make the right decisions--today. But what about tomorrow?

Meanwhile, the US has stupid leaders who make the wrong decisions; but our system has historically been decentralized enough that we could thrive despite these incompetents. The difference today is that the accumulation of deadening regulation has been preventing the kind of open competition we need to drive that next phase of change. I mentioned renewable energy and smart grids as the next phase of industrialization in another thread, but this will not be possible if government regulation of utilities deprives them of the profits needed to make the investments in smart grids, or if the government picks winners and losers among the renewables through subsidies instead of allowing the market to decide what form of renewable energy will best serve our needs.

3) Stage of development and precedents

China has done well in its "catch up" phase, but now it's entering the leadership phase of economic growth. It has to innovate to stay ahead of competitors, since its cost advantages are rapidly diminishing. To recycle what I said in regards to the demise of Japanese competitiveness , "It's easy to catch up to the leader. It's hard to take over as leader. Leadership, or our focus here, innovation, requires constant questioning of the status quo, and an embrace of risk to push the boundaries of what is possible. Neither of these factors suit Japanese society well, until Japan is forced to embrace them."

Source: What happened to all Japanese Electronic Giants? All of them are about to collapse! | Page 8

I think it's fair to say that this is also partially true of China, in that China proceeds on its course until it is forced to change. I believe that China has a much stronger risk-taking culture than Japan, though, so it may have an easier time making the transition to the next stage of the economy. Here's a nice chart:

China is making the transition to a developed economy, and the US is already post-industrial. China's challenges are to break down its SOEs and make the economy more competitive by opening opportunities to SMEs, all the while strengthening the financial system and the rule of law. After all, China can't expect to derive profit from its R&D activities if its companies are stealing IP from each other, and other countries are stealing China's IP in retaliation for its weak protections. This is Xi's task, and we are waiting to see if he will succeed with his reforms, or stop at the populist measures (anti-corruption).

The US has its own challenges as a post-industrial nation. As I have already pointed out, regulation is too complex, and too heavy, to enable the free market to function properly. Our demographics are better than China's, but not looking great. We already leveraged up our economy to juice growth, and paid the price, so that avenue is no longer available to us. That said, we have a track record of innovation that drives productivity growth, and it is our challenge today to foster that next wave of innovation and exploit it when it comes along.

4) Conclusion

Europe hit the wall, and hasn't been able to reform successfully. Abe talked a good game, but never implemented his "third arrow" of structural reforms, so Japan is hitting the wall. The United States is burdening its economy with higher taxes and Obamacare, so we're moving--for now--in the wrong direction, but the pendulum always swings to extremes in the US before the correction comes. China is making the right announcements, but execution is key (and I am not talking about corrupt officials, here). I do believe that China will return to its historical place as the largest economy in the world, but I don't believe that the US will become as decrepit as Europe or Russia. The main question isn't about the distance between China and the US, but rather the gap between China and the US vs. the rest of the world.

@Nihonjin1051 As far as your discussion about GDP per capita, I agree with you. That prospect is so many decades away that too much can happen between now and then to make interesting projections. The precedent of Argentina presents itself, though--around 1900, it was one of the richest countries in the world, and even after over 100 years of incompetent management, it is still a middle-income country. It's easy to get rich, it's hard to become poor once one is rich. For that reason, I don't see a significant US decline in the cards.

 

[Beidou2020]

China will never ever collapse. China is destined to be the most powerful country on this planet bar none. No one will stop the rise and dominance of China.

US is is rapid decline.
Japan is finished.
India is a complete disaster.

China has no rivals and China can dominate this world like old times.

This is China's world, the rest just lives in it.

 

[Aepsilons]

To be honest, I'm not an economist either, but I'll do my best. Since it's a Friday night, please forgive me for quoting myself from other threads, but I find that we're beginning to cover this ground quite thoroughly. The summary version: on an absolute GDP basis, China's dominance is inevitable, but on a GDP per capita basis, not so much.

1) Demographics

Already discussed, I won't rehash here. China's demographics are not good, we all agree. What remains to be seen is if China can reverse the trend. Many have been able to sharply curtail population growth, even the Islamic Republic of Iran, but virtually no one has been able to increase population growth back above replacement once total fertility rates fall below 2.1. Many have tried, virtually all have failed, but China continues to surprise, so who knows.

Meanwhile, the US, through a combination of immigration and focus on families, has a healthier TFR of 2.01, but even we are struggling with this issue (as are are developed economies).

2) The state of the relative economies

We have discussed this before as well, so I will just post a link to Chinese Economy News & Updates | Page 261 which is a good summary of the situation. China has done a tremendously good job implementing the Japan/Asian Tigers model of intensive investment and export-led growth, but that stage of development is coming to an end. The proof? @Raphael just posted a great thread Conference Board Study: Productivity goes negative as China slips towards middle-income trap about declining Chinese TFP. China will change because China must change; if it does not, China could suffer a Japanese- or European-style stagnant period due to its growing NPL issues. (As detailed in the link I posted in the beginning of this paragraph).

The United States has just recovered from its financial crisis. Banking crises are known to be the most vicious and long-lasting, and this one was no different. That said, we learned hard lessons from Japan, and put them to good use to prevent ourselves from becoming another Japan and losing two decades to a listless, deflationary economy. The United States has recovered from many harsh downturns, but it's an open question whether we have the energy and will to do so again. The US has undergone many mini-revolutions in order to get its economy back on track.

Some smart guy said:
"The US was down and out in the 1970s. Then the successive financial revolution, re-engineering revolution, and internet revolution re-ignited American growth, and the distance between the US and other industrialized nations started growing again. In the 1970s, China was an economic dwarf. Think about how much can change in 50 years, and then examine if you can still be confident in your assumptions about the next 50."

Source: The diplomatic battle between China and Japan is taking a Latin American road trip | Page 2

Unlike China, these revolutions are not planned, but rather are the macro results of individual innovation, and the discipline that invisible hand of the market enforces. Some wonder how long our "luck" can last, but it is rather the innovation that springs from the chaos of competition that provides us with these opportunities to change. That is the strength of the US, and potentially the weakness of China. China has smart leaders--today. China's leaders make the right decisions--today. But what about tomorrow?

Meanwhile, the US has stupid leaders who make the wrong decisions; but our system has historically been decentralized enough that we could thrive despite these incompetents. The difference today is that the accumulation of deadening regulation has been preventing the kind of open competition we need to drive that next phase of change. I mentioned renewable energy and smart grids as the next phase of industrialization in another thread, but this will not be possible if government regulation of utilities deprives them of the profits needed to make the investments in smart grids, or if the government picks winners and losers among the renewables through subsidies instead of allowing the market to decide what form of renewable energy will best serve our needs.

3) Stage of development and precedents

China has done well in its "catch up" phase, but now it's entering the leadership phase of economic growth. It has to innovate to stay ahead of competitors, since its cost advantages are rapidly diminishing. To recycle what I said in regards to the demise of Japanese competitiveness , "It's easy to catch up to the leader. It's hard to take over as leader. Leadership, or our focus here, innovation, requires constant questioning of the status quo, and an embrace of risk to push the boundaries of what is possible. Neither of these factors suit Japanese society well, until Japan is forced to embrace them."

Source: What happened to all Japanese Electronic Giants? All of them are about to collapse! | Page 8

I think it's fair to say that this is also partially true of China, in that China proceeds on its course until it is forced to change. I believe that China has a much stronger risk-taking culture than Japan, though, so it may have an easier time making the transition to the next stage of the economy. Here's a nice chart:

China is making the transition to a developed economy, and the US is already post-industrial. China's challenges are to break down its SOEs and make the economy more competitive by opening opportunities to SMEs, all the while strengthening the financial system and the rule of law. After all, China can't expect to derive profit from its R&D activities if its companies are stealing IP from each other, and other countries are stealing China's IP in retaliation for its weak protections. This is Xi's task, and we are waiting to see if he will succeed with his reforms, or stop at the populist measures (anti-corruption).

The US has its own challenges as a post-industrial nation. As I have already pointed out, regulation is too complex, and too heavy, to enable the free market to function properly. Our demographics are better than China's, but not looking great. We already leveraged up our economy to juice growth, and paid the price, so that avenue is no longer available to us. That said, we have a track record of innovation that drives productivity growth, and it is our challenge today to foster that next wave of innovation and exploit it when it comes along.

4) Conclusion

Europe hit the wall, and hasn't been able to reform successfully. Abe talked a good game, but never implemented his "third arrow" of structural reforms, so Japan is hitting the wall. The United States is burdening its economy with higher taxes and Obamacare, so we're moving--for now--in the wrong direction, but the pendulum always swings to extremes in the US before the correction comes. China is making the right announcements, but execution is key (and I am not talking about corrupt officials, here). I do believe that China will return to its historical place as the largest economy in the world, but I don't believe that the US will become as decrepit as Europe or Russia. The main question isn't about the distance between China and the US, but rather the gap between China and the US vs. the rest of the world.

@Nihonjin1051 As far as your discussion about GDP per capita, I agree with you. That prospect is so many decades away that too much can happen between now and then to make interesting projections. The precedent of Argentina presents itself, though--around 1900, it was one of the richest countries in the world, and even after over 100 years of incompetent management, it is still a middle-income country. It's easy to get rich, it's hard to become poor once one is rich. For that reason, I don't see a significant US decline in the cards.

Very solid and articulate points @LeveragedBuyout .

America's manufacturers are at the heart of our country's economy, providing good-paying jobs for millions of American families. The U.S. manufacturing sector is today the world's largest; indeed, by itself it would represent the 9th largest economy in the world. Nevertheless, manufacturing today faces enormous challenges. Manufacturing workers have paradoxically often been victims of their sector's own success, as rapid productivity growth has meant that goods can be produced with fewer workers, contributing to a several decades-long trend of declining employment. This trend has been compounded by the shift of consumer spending from manufactured goods like TVs and cars to services like tourism, dining out and healthcare as well as increased consumption of manufacturing goods made elsewhere. And the recent downturn has been particularly painful for manufacturing companies, their workers and the communities that rely on them. Despite these challenges, many sectors of American manufacturing have the potential to enjoy significant growth and success. With the right policies, America can foster successful industries like biotechnology, wind power, nanotechnology, aerospace, next generation automobiles, and perhaps more importantly the industries of the future that we do not even know about today. Although the talent and hard work of America's entrepreneurs, innovators, and workers will drive these businesses, there is a critical role for sound government policy. In this regard, I would refer to the “Multiplier Effect” , whose premise is based on the theory that each new manufacturing job will lead to about three more jobs around it, creating even more opportunity in American communities. So, the re-orientation of manufacturing and industrial jobs from foreign sites such as the PRC, Indonesia, Vietnam, India, Africa – back to the United States will have a resolute profound effect on US work force and economy. But that remains to be seen.


Reference:

Revitalizing American Manufacturing--And America's Middle Class. (2013). Vital Speeches Of The Day, 79(10), 335.

 

[VCheng]

China will never ever collapse. China is destined to be the most powerful country on this planet bar none. No one will stop the rise and dominance of China.

US is is rapid decline.
Japan is finished.
India is a complete disaster.

China has no rivals and China can dominate this world like old times.

This is China's world, the rest just lives in it.

Please let me know when any of what you claim actually happens rather than only in your dreams.

 

[LeveragedBuyout]

Very solid and articulate points @LeveragedBuyout .

Although the talent and hard work of America's entrepreneurs, innovators, and workers will drive these businesses, there is a critical role for sound government policy. In this regard, I would refer to the “Multiplier Effect” , whose premise is based on the theory that each new manufacturing job will lead to about three more jobs around it, creating even more opportunity in American communities. So, the re-orientation of manufacturing and industrial jobs from foreign sites such as the PRC, Indonesia, Vietnam, India, Africa – back to the United States will have a resolute profound effect on US work force and economy. But that remains to be seen.

I am in complete agreement with this. The problem is that too many equate "government policy" with "government intervention." Sound government policy means rewarding risk-takers while protecting the consumer from outright fraud or theft, i.e. macro-level management. Sound government policy does not include protection of the standard of living, or increasing the availability of frivolous lawsuits as a way to become wealthy. When an entrepreneur fails, he fails alone. When an entrepreneur succeeds, everyone (the government, the labor movement, the environmentalists, etc.) all want their cut. This asymmetry cannot stand, and I'm not saying that the government should bail out failed entrepreneurs. The government needs to step back and clear the way for entrepreneurial genius to revitalize the economy.

The one area where I think the government can have a tremendously positive effect with a proactive policy is to fund basic research. When government funding for basic research was high in the golden age of the 1950s and 1960s, it led to a wave of innovation that lasted for 40 years. It's time that the government stand behind entrepreneurs by helping develop the next generation of innovation, instead of standing in front of them collecting tolls.

Anyway, nice find--how did you come across this book, and who wrote that speech?

 

[Aepsilons]

Anyway, nice find--how did you come across this book, and who wrote that speech?

Paul Simon, the President & CEO of Walmart. On a side note, Walmart is an example of American Capitalism , and effective capitalization of the marketing and production sectors.

This is but one example of the American Exceptionalism.

 

[Beidou2020]

Please let me know when any of what you claim actually happens rather than only in your dreams.

Please let me know when your China will 'collapse' dreams comes true
60 years of collapse predictions and we are still waiting

There is no country on this planet that can challenge China at its best.
China is already surpassed the US in many areas even as a developing country, and we are only about 20% of our full potential whereas the US is at its 100% potential.

I see nothing to stop the rise of China and become the most powerful country on this planet bar none and no country that can challenge China.

All of China's rivals are weak or stagnant. US has been in decline for about 20 years and that process is accelerating and India is far too diverse and divided to ever be any sort of challenge to China. Indian economy is already facing massive problems and separatist movements are all across India.

Forget about Japan and Russia which are far too small to compete with a giant like China.

 

[xunzi]

I am referring to the coming demographic changes, not socioeconomic.

Most countries face a demographic change, so why is it unique to China in the collapse theory, my friend?

 

[FairAndUnbiased]

Very solid and articulate points @LeveragedBuyout .

America's manufacturers are at the heart of our country's economy, providing good-paying jobs for millions of American families. The U.S. manufacturing sector is today the world's largest; indeed, by itself it would represent the 9th largest economy in the world.

Better start finding a new source, it hasn't been true for 3 years. Funny thing is, your source was written 1 year ago.

Secondary sector of the economy - Wikipedia, the free encyclopedia

List of countries by GDP sector composition - Wikipedia, the free encyclopedia

All numbers from IMF.

 

[sweetgrape]

Are you so naive not to realize that China economy go down in real?
No one want China economy collapse because the economies are interactive, similar to banking system.

I myself don't want China is bankrupted.
During 2008-2009 we saw how US economy is, it affect a lot to all remain, incl. China.

It's so simple that we based on just GDP rate, China is not so transparent in economic figures but it's clear that bubbles of real estates, bad debts of banks, reduction in domestic demand, jobs lost, ...tell much.

This is the common issue not only China must face.

So you think you reprsent the world, you don't want, so everyone don't? even you can, your word, that's joke, hehe!

Don't show you ridiculous vietnamese "theory" again, it is same ridiculous like the China Collapse Theory, In the forum, most of Chinese and some other foreigner know you well.

 

[applesauce]

I would re-assess the definition of "very soon". The level of development of the United States, as a whole, is not in equilibrium with that of China. The United States' GDP per capita is at $54,000, whereas in China, theirs is a mere $7000. Considering the high level of software development and pre-eminence of service oriented economy and with the re-invigoration of US manufacturing and industry, the United States shows a vibrancy that very few highly industrialized economies can manifest. The United States' GDP stands at $17.25 Trillion, and expected to grow an additional $500 Billion by the end of this year alone.

No doubt the Chinese economy is growing a reasonable rate , however, in regards to surpassing US per capita and level of development, nay, that will take quite some time to even be at parity with that of the United States.

@LeveragedBuyout , perhaps you can add some more on US strengths and weaknesses in regards to manufacturing and development. Sadly my strengths are not in economic theory or developing markets. Thanks, Sir.

Perhaps he means surpass the US in terms of nominal GDP, which according to most of the more recent predictions, is slated to happen sometime in the early 2020s, perhaps even 2021, while yes the US may be adding many billions to GDP this year alone, china is expected to add close to 1 trillion in the same year, several hundred billion more than the US.

in per capital terms, of course you are correct, china is far far behind the US but its is slowly be surely rising with ever more cities now crossing the 20k per year per capita mark, though its still wont reach US levels for quite some time if ever. as a whole however, per capita GDP need not reach US levels for the PRC to rival the US in most areas whether in research and development, the military or certainly as a market for goods/economics in general.

the US does have some major advantages as you mentioned, its a stable, wealthy, resource-rich country and it draws immigrants from all over, in fact, maybe the best china can do in the long term is to be at parity with the US and may never surpass it by much if at all (all else being equal, as in no revolutions and the like), given the countries have equal size, china may have more people, but the US is still growing, china has a good location for trade but the US geographical situation is better in terms of security.

 

[Beidou2020]

US will not touch China in 20 years. US cannot match Chinese economic power, and with economic power comes military power.

US will realise as time goes by what its like to go up against a real superpower rival.

Soviet Union challenge will look minor compared to the challenge China will be to the US.

 

[mike2000]

To be honest, I'm not an economist either, but I'll do my best. Since it's a Friday night, please forgive me for quoting myself from other threads, but I find that we're beginning to cover this ground quite thoroughly. The summary version: on an absolute GDP basis, China's dominance is inevitable, but on a GDP per capita basis, not so much.

1) Demographics

Already discussed, I won't rehash here. China's demographics are not good, we all agree. What remains to be seen is if China can reverse the trend. Many have been able to sharply curtail population growth, even the Islamic Republic of Iran, but virtually no one has been able to increase population growth back above replacement once total fertility rates fall below 2.1. Many have tried, virtually all have failed, but China continues to surprise, so who knows.

Meanwhile, the US, through a combination of immigration and focus on families, has a healthier TFR of 2.01, but even we are struggling with this issue (as are are developed economies).

2) The state of the relative economies

We have discussed this before as well, so I will just post a link to Chinese Economy News & Updates | Page 261 which is a good summary of the situation. China has done a tremendously good job implementing the Japan/Asian Tigers model of intensive investment and export-led growth, but that stage of development is coming to an end. The proof? @Raphael just posted a great thread Conference Board Study: Productivity goes negative as China slips towards middle-income trap about declining Chinese TFP. China will change because China must change; if it does not, China could suffer a Japanese- or European-style stagnant period due to its growing NPL issues. (As detailed in the link I posted in the beginning of this paragraph).

The United States has just recovered from its financial crisis. Banking crises are known to be the most vicious and long-lasting, and this one was no different. That said, we learned hard lessons from Japan, and put them to good use to prevent ourselves from becoming another Japan and losing two decades to a listless, deflationary economy. The United States has recovered from many harsh downturns, but it's an open question whether we have the energy and will to do so again. The US has undergone many mini-revolutions in order to get its economy back on track.

Some smart guy said:
"The US was down and out in the 1970s. Then the successive financial revolution, re-engineering revolution, and internet revolution re-ignited American growth, and the distance between the US and other industrialized nations started growing again. In the 1970s, China was an economic dwarf. Think about how much can change in 50 years, and then examine if you can still be confident in your assumptions about the next 50."

Source: The diplomatic battle between China and Japan is taking a Latin American road trip | Page 2

Unlike China, these revolutions are not planned, but rather are the macro results of individual innovation, and the discipline that invisible hand of the market enforces. Some wonder how long our "luck" can last, but it is rather the innovation that springs from the chaos of competition that provides us with these opportunities to change. That is the strength of the US, and potentially the weakness of China. China has smart leaders--today. China's leaders make the right decisions--today. But what about tomorrow?

Meanwhile, the US has stupid leaders who make the wrong decisions; but our system has historically been decentralized enough that we could thrive despite these incompetents. The difference today is that the accumulation of deadening regulation has been preventing the kind of open competition we need to drive that next phase of change. I mentioned renewable energy and smart grids as the next phase of industrialization in another thread, but this will not be possible if government regulation of utilities deprives them of the profits needed to make the investments in smart grids, or if the government picks winners and losers among the renewables through subsidies instead of allowing the market to decide what form of renewable energy will best serve our needs.

3) Stage of development and precedents

China has done well in its "catch up" phase, but now it's entering the leadership phase of economic growth. It has to innovate to stay ahead of competitors, since its cost advantages are rapidly diminishing. To recycle what I said in regards to the demise of Japanese competitiveness , "It's easy to catch up to the leader. It's hard to take over as leader. Leadership, or our focus here, innovation, requires constant questioning of the status quo, and an embrace of risk to push the boundaries of what is possible. Neither of these factors suit Japanese society well, until Japan is forced to embrace them."

Source: What happened to all Japanese Electronic Giants? All of them are about to collapse! | Page 8

I think it's fair to say that this is also partially true of China, in that China proceeds on its course until it is forced to change. I believe that China has a much stronger risk-taking culture than Japan, though, so it may have an easier time making the transition to the next stage of the economy. Here's a nice chart:

China is making the transition to a developed economy, and the US is already post-industrial. China's challenges are to break down its SOEs and make the economy more competitive by opening opportunities to SMEs, all the while strengthening the financial system and the rule of law. After all, China can't expect to derive profit from its R&D activities if its companies are stealing IP from each other, and other countries are stealing China's IP in retaliation for its weak protections. This is Xi's task, and we are waiting to see if he will succeed with his reforms, or stop at the populist measures (anti-corruption).

The US has its own challenges as a post-industrial nation. As I have already pointed out, regulation is too complex, and too heavy, to enable the free market to function properly. Our demographics are better than China's, but not looking great. We already leveraged up our economy to juice growth, and paid the price, so that avenue is no longer available to us. That said, we have a track record of innovation that drives productivity growth, and it is our challenge today to foster that next wave of innovation and exploit it when it comes along.

4) Conclusion

Europe hit the wall, and hasn't been able to reform successfully. Abe talked a good game, but never implemented his "third arrow" of structural reforms, so Japan is hitting the wall. The United States is burdening its economy with higher taxes and Obamacare, so we're moving--for now--in the wrong direction, but the pendulum always swings to extremes in the US before the correction comes. China is making the right announcements, but execution is key (and I am not talking about corrupt officials, here). I do believe that China will return to its historical place as the largest economy in the world, but I don't believe that the US will become as decrepit as Europe or Russia. The main question isn't about the distance between China and the US, but rather the gap between China and the US vs. the rest of the world.

@Nihonjin1051 As far as your discussion about GDP per capita, I agree with you. That prospect is so many decades away that too much can happen between now and then to make interesting projections. The precedent of Argentina presents itself, though--around 1900, it was one of the richest countries in the world, and even after over 100 years of incompetent management, it is still a middle-income country. It's easy to get rich, it's hard to become poor once one is rich. For that reason, I don't see a significant US decline in the cards.

Wow I really do enjoy reading your posts bro

To be honest, I'm not an economist either, but I'll do my best. Since it's a Friday night, please forgive me for quoting myself from other threads, but I find that we're beginning to cover this ground quite thoroughly. The summary version: on an absolute GDP basis, China's dominance is inevitable, but on a GDP per capita basis, not so much.

1) Demographics

Already discussed, I won't rehash here. China's demographics are not good, we all agree. What remains to be seen is if China can reverse the trend. Many have been able to sharply curtail population growth, even the Islamic Republic of Iran, but virtually no one has been able to increase population growth back above replacement once total fertility rates fall below 2.1. Many have tried, virtually all have failed, but China continues to surprise, so who knows.

Meanwhile, the US, through a combination of immigration and focus on families, has a healthier TFR of 2.01, but even we are struggling with this issue (as are are developed economies).

2) The state of the relative economies

We have discussed this before as well, so I will just post a link to Chinese Economy News & Updates | Page 261 which is a good summary of the situation. China has done a tremendously good job implementing the Japan/Asian Tigers model of intensive investment and export-led growth, but that stage of development is coming to an end. The proof? @Raphael just posted a great thread Conference Board Study: Productivity goes negative as China slips towards middle-income trap about declining Chinese TFP. China will change because China must change; if it does not, China could suffer a Japanese- or European-style stagnant period due to its growing NPL issues. (As detailed in the link I posted in the beginning of this paragraph).

The United States has just recovered from its financial crisis. Banking crises are known to be the most vicious and long-lasting, and this one was no different. That said, we learned hard lessons from Japan, and put them to good use to prevent ourselves from becoming another Japan and losing two decades to a listless, deflationary economy. The United States has recovered from many harsh downturns, but it's an open question whether we have the energy and will to do so again. The US has undergone many mini-revolutions in order to get its economy back on track.

Some smart guy said:
"The US was down and out in the 1970s. Then the successive financial revolution, re-engineering revolution, and internet revolution re-ignited American growth, and the distance between the US and other industrialized nations started growing again. In the 1970s, China was an economic dwarf. Think about how much can change in 50 years, and then examine if you can still be confident in your assumptions about the next 50."

Source: The diplomatic battle between China and Japan is taking a Latin American road trip | Page 2

Unlike China, these revolutions are not planned, but rather are the macro results of individual innovation, and the discipline that invisible hand of the market enforces. Some wonder how long our "luck" can last, but it is rather the innovation that springs from the chaos of competition that provides us with these opportunities to change. That is the strength of the US, and potentially the weakness of China. China has smart leaders--today. China's leaders make the right decisions--today. But what about tomorrow?

Meanwhile, the US has stupid leaders who make the wrong decisions; but our system has historically been decentralized enough that we could thrive despite these incompetents. The difference today is that the accumulation of deadening regulation has been preventing the kind of open competition we need to drive that next phase of change. I mentioned renewable energy and smart grids as the next phase of industrialization in another thread, but this will not be possible if government regulation of utilities deprives them of the profits needed to make the investments in smart grids, or if the government picks winners and losers among the renewables through subsidies instead of allowing the market to decide what form of renewable energy will best serve our needs.

3) Stage of development and precedents

China has done well in its "catch up" phase, but now it's entering the leadership phase of economic growth. It has to innovate to stay ahead of competitors, since its cost advantages are rapidly diminishing. To recycle what I said in regards to the demise of Japanese competitiveness , "It's easy to catch up to the leader. It's hard to take over as leader. Leadership, or our focus here, innovation, requires constant questioning of the status quo, and an embrace of risk to push the boundaries of what is possible. Neither of these factors suit Japanese society well, until Japan is forced to embrace them."

Source: What happened to all Japanese Electronic Giants? All of them are about to collapse! | Page 8

I think it's fair to say that this is also partially true of China, in that China proceeds on its course until it is forced to change. I believe that China has a much stronger risk-taking culture than Japan, though, so it may have an easier time making the transition to the next stage of the economy. Here's a nice chart:

China is making the transition to a developed economy, and the US is already post-industrial. China's challenges are to break down its SOEs and make the economy more competitive by opening opportunities to SMEs, all the while strengthening the financial system and the rule of law. After all, China can't expect to derive profit from its R&D activities if its companies are stealing IP from each other, and other countries are stealing China's IP in retaliation for its weak protections. This is Xi's task, and we are waiting to see if he will succeed with his reforms, or stop at the populist measures (anti-corruption).

The US has its own challenges as a post-industrial nation. As I have already pointed out, regulation is too complex, and too heavy, to enable the free market to function properly. Our demographics are better than China's, but not looking great. We already leveraged up our economy to juice growth, and paid the price, so that avenue is no longer available to us. That said, we have a track record of innovation that drives productivity growth, and it is our challenge today to foster that next wave of innovation and exploit it when it comes along.

4) Conclusion

Europe hit the wall, and hasn't been able to reform successfully. Abe talked a good game, but never implemented his "third arrow" of structural reforms, so Japan is hitting the wall. The United States is burdening its economy with higher taxes and Obamacare, so we're moving--for now--in the wrong direction, but the pendulum always swings to extremes in the US before the correction comes. China is making the right announcements, but execution is key (and I am not talking about corrupt officials, here). I do believe that China will return to its historical place as the largest economy in the world, but I don't believe that the US will become as decrepit as Europe or Russia. The main question isn't about the distance between China and the US, but rather the gap between China and the US vs. the rest of the world.

@Nihonjin1051 As far as your discussion about GDP per capita, I agree with you. That prospect is so many decades away that too much can happen between now and then to make interesting projections. The precedent of Argentina presents itself, though--around 1900, it was one of the richest countries in the world, and even after over 100 years of incompetent management, it is still a middle-income country. It's easy to get rich, it's hard to become poor once one is rich. For that reason, I don't see a significant US decline in the cards.

Wow I really do enjoy reading your comments bro. Your are one of the very few sane members here who makes constructive arguments/points. So far I have learned quite alot from your posts. I'm kind of surprised, but are you really American? Since I find it surprising as almost all Americans members I have seen on here are rather too biased towards china, Russia and other emerging countries and hardly make any credible/consructive arguments /points to back their claims. Keep up your good work. It's always a delight to read your posts.

Coming back to topic. I completely I agree with all your points. China's main advantage is it huge hard working population, landmass, resources and it's fairly competent leadership /political system. Additionally, it still has a relatively poor/low per capital income which gives it a huge/large room for growth.
I have absolutely no doubt that China will surpass the U. S economically in the coming decade. However, GDP per capital wise it will take a very long time for that to happen more than 70years I think (if it does at all. ).
China right now is simply too big to fail, moreover it hasn't yet even reached half of it true potential. So all talk of collapse I must confess is just wishful thinking by our media and other rival countries of Chna(which is understandable, once when you have a competitor you will always wish for him to stumble so you can keep/extend your lead or overtake them in case you are behind, so nothing surprising in that ).
As for the U. S it isn't in decline like some naysayers will want us to believe, the U. S is still the world's most advance /industrialised nation on earth, and is still the fastest growing developed major economy out there. Just like China, many people have been predicting a U. S collapse/decline invane. Lol. The U. S isn't in decline, it's just that China is rising so fast it seems the U. S is declining, but they are not. The U. S still adds more to it's GDP each year than any other nation on earth except China. So the U. S isn't in decline, and we should never underestimate U. S ability to innovate /reinvent itself like it has done several times before in the past. The U. S as a developed nation which has reached its peak, is really commendable for it to still be growing at its current rate giving its huge economy and developed market. China will have a tough time to match that when it's as developed as the U. S(even though I must confess, by then Chna will be at least 3 times bigger than the U S if that's to happen. )

So the coming decade will sure be interesting as this balance of power gradually shifts with all what this means in terms of Geo politics in Asia and the world.

As leveraged buyout said its easy to get rich, but it's harder to get poor once you are rich. So the west/U.S is going nowhere, we will still be wealthy despite our slowdown. China for now will find it easier to keep growing at least 6-7percent ffor the foreseeable future since its still relatively poor and has much room for growth. When you come from a low base down, the only direction is up. So forget about Chna collapse theory, it's pure propaganda. Yes Gordon Chang I'm looking at you.