The Changing Economic Order

After decades of spectacular growth, Chinas economy overtook Japan in the second quarter, and is now on track to eclipse Japan this year as the worlds second largest economy, behind the United States.

Unseating Japan, and in recent years passing Germany, France and Great Britain, underscores China’s clout and gives credence to the forecast that they could pass the United States and become the world’s largest economy by 2030, less than 20 years from now. But it was also forecast in the 80’s that Japan’s economy would some day overtake that of the United States, and clearly that is not about to happen anytime soon. And so it may be with China.

For those about to write off the US economy just remember this, at almost $15 trillion GDP, it still is larger than the next 3 largest economies COMBINED, China $5 trillion, Japan $5 trillion and Germany $3.3 trillion.

A trillion dollars look like in figures – $1,000,000,000,000.

However everything is not quite like it seems. China has roughly the same land mass as the United States, but it is burdened with one fifth of the world’s population, and greatly insufficient resources.

Its annual per capita income is more on a par with impoverished nations like Algeria, El Salvador and Albania, which along with China are close to $6,500. The United States was about $46,000 last year, Germany $34,100, France $32,800, Britain $35,200 and even “poor” old Ireland was at $42,000 last year, though that was down from $46,000 in 2008, and $48,000 in 2007.

Many economists say that China’s economy is too dependent on exports and investment and that it needs to encourage greater domestic consumption. The Government faces many big economic challenges, among them sustaining adequate jobs growth for tens of millions of new entrants to the work force, providing a realistic social safety net, reducing corruption and other economic crime, and containing environmental damage related to the economy’s rapid transformation.

Nevertheless there is no doubt that China is reshaping the way the global economy functions, given its prodigious appetite for oil, coal, iron ore and other natural resources, not least water, and its consequent major impact on commodity prices.

There are few areas where China is already number one in the world.  Last year it passed out Germany as the world’s biggest exporter.  It is the world’s biggest manufacturer and consumer of cars.  And it’s the world’s biggest emitter of carbon-dioxide, which scientists link to global warming.  It emitts an estimated 22.3% of the world’s total, ahead of the United States at 19.9%.

Ireland is in 62nd place producing •15%. So with the top dozen emitters accounting for 70% of carbon emissions, and with China and the United States between them accounting for 42.2%, one wonders about the miniscule impact a small nation like Ireland can have. Is it worth the 5% hike in electricity prices as we are about to have introduced? Hardly, particularly at a time when the priority should be the restoration of national competitivness.

Will China become the great new source market for visitor-shy tourist destinations? It is estimated that over 50 million visits will be made “abroad” by Chinese travellers this year. But the vast majority of those will be to destinations adjoining China or nearby. Perhaps in time some useful niche markets will develop for Ireland. Perhaps.

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August 19th 2010

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