malisoka
JF-Expert Member
- Jul 8, 2012
- 1,860
- 2,638
Prior to the financial crisis that rumbled outward from the United States and shook the global economy, the majority of people around the world viewed the U.S. as the planet's leading economic power, according to a survey conducted by the Pew Research Center in 2008. At the time, China -- despite decades of rapid expansion -- received only half as many nods at No. 1 as did the United States.
How times have changed.
The financial crisis and subsequent recession vastly altered those perceptions. No longer is the U.S. viewed as having a cloak of invincibility. According to 26,000 people interviewed from 21 separate countries by the Pew Research Center, the U.S. is no longer looked upon as the world's leading economic power -- the title now belongs to China.
China doesn't fit the mold of a traditional economic superpower. Many of its residents live below what many of us would consider the poverty line and its vast countryside is still dominated by an agrarian economy.
Still, China is quickly on the path to gaining just as much, if not greater, significance as the United States in regard to global economic health. You simply can't ignore China anymore
1. China is the world's largest manufacturer.
It's taken 160 years, but in 2011 China reclaimed its dominance as the worldwide leader in manufacturing output. Responsible for 19.9% of world output compared to the United States' 19.4%, China has retaken the title the U.S. had held for the past 110 years.
China's success relies on two comparative advantages that the U.S. simply doesn't have.
First, China has a gigantic labor force. With approximately 89 million more people involved in industrial production in China than in the U.S., more bodies are capable of producing more goods. Although U.S. workers are far more productive than their Chinese counterparts, it's a sheer numbers game that China will win every time.
Secondly, Chinese labor is considerably cheaper than U.S. labor. In the United States, the government has set the federal minimum wage at $7.25. Chinese minimum wage laws differ across its 31 different provinces and can run as low as 600 yuan per month to as high as 1,450 yuan per month -- in U.S. dollar terms, that's roughly $94 to $227 each month.
2. China owns more U.S. debt than U.S. citizens do.
Having debt is never a good thing, but it's been a particularly touchy subject over in Europe.
Greece, Ireland, Portugal, and now Spain have all succumbed to unsustainable debt levels, and that has left many American citizens wondering if we're headed down a similar path.
When the U.S. government chose to raise the debt ceiling last August for the 78th time since 1960, U.S. debt stood at $14.3 trillion. Of that total, nearly $10 trillion is held by individuals and corporations, as well as by state, local, and foreign governments. According to U.S. government statistics through mid-2011, China is the largest public debt holder, with $1.13 trillion -- slightly higher than the $1.11 trillion U.S. citizens and corporations own in U.S. debt.
China ranks behind only the Social Security Trust and the Federal Reserve (which only owns U.S. bonds as part of its two quantitative easing measures) in terms of total U.S. debt holdings. As the U.S. continues to drive further into debt, China stands ready to keep collecting the interest.
3. China is the world's leading energy consumer.
The U.S. may still have the world's largest economy by Gross Domestic Product, but as of 2010 it no longer consumes as many barrels of oil equivalent each year as China does.
The rapid industrialization of China is one of the primary reasons oil prices have risen so dramatically over the past decade. Whereas 71% of U.S. GDP is tied to personal consumption, China's growth stems from its manufacturing sector and its continuing infrastructure build-out -- both very energy-intensive segments. Although China still derives much of its energy production from coal, its reliance on oil is increasing. Saudi Arabia, the world's biggest crude exporter, now ships more to China than to the U.S. and looks first to China rather than the U.S. to decide whether or not to increase production.
China's foreign practices also give it an edge. While U.S. companies are constrained in their expansion efforts by politics, China has stated its willingness to build refineries in Iran. In further expansionary efforts, China-based oil company CNOOC (CEO) attempted to infiltrate the U.S. market by bidding on Unocal in 2005, but the move was blocked and Chevron (CVX) eventually outbid the government-owned oil giant.
It appears the power that China can exert on the oil market is only growing.
4. China is on pace to become the world's largest economy in 10 years or less.
The United States is the largest economy based on GDP right now, but it probably won't be for too much longer considering China's decades of outperformance.
Since 1980, China's GDP has grown by an average of 10.02% annually. Based on its projected growth rate of 7.5% as predicted by Premier Wen Jiabao in March, China is on pace to surpass U.S. GDP growth, which has averaged just 2.67% since over the same period, by 2019. Even if China's GDP growth slowed to just 5% -- which would be very rare from a historical perspective -- it would surpass U.S. total GDP by 2021. That type of consistent outperformance simply can't be ignored.
Source: World Bank.
5. China is poised to become the world's leading importer of precious metals.
As you can imagine, with so much emphasis placed on the manufacturing sector, the demand for precious metals including copper, gold, and silver is rising dramatically. These precious metals are used in everything from construction to electronics manufacturing, their applications are widespread and China's demand for them is absolutely insatiable.
China overtook the U.S. in copper consumption in 2002 and now uses more than four times as much annually. Copper producers like Freeport-McMoRan Copper & Gold (FCX), which counts China as its largest customer, rely heavily on Chinese demand to buoy copper prices, the lifeline to its profitability.
Gold is also rapidly becoming an investable source of wealth in China, with high inflation rates threatening to devalue workers' earnings. Between 1950 and 2003 the Chinese government barred citizens from owning gold bullion, so it wasn't until recently that Chinese citizens were able to invest in the shiny yellow metal. It took just eight years for China to surpass India in gold investment demand since that ban was
Read more:
http://postgiver.com
