China is an interesting country; the Chinese civilization has endured the test of time, and they have called “China” home for thousands of years. In recent times, they have gotten some bad press. A few decades ago, the bad press was about the atrocities and mass starvation which killed tens of millions during the peak of the communist years; in recent years, it’s been about the heavy environmental impact of China’s industry, as well as continued repression and controls. However, the country has truly come a long way from the communist black hole into which it had descended. For those who haven’t seen the incredible changes that China has been undergoing in the past couple of decades, it might be a little hard to believe. This eastern country is rising up incredibly fast, and is nothing like the China of even 50 years ago.
Check out photos from Shanghai 20 years ago, and today:
Shanghai, China, 1990. Source: http://bit.ly/9nCiye
Shanghai, China, 2010. Source: http://bit.ly/9nCiye
China’s rising prosperity
I find such a level of change over such a short period of time to be nothing short of incredible. On this side of the globe, we’ve had booms to be sure, but nothing like that. This is just one city among dozens of Chinese metropolises that have similarly boomed.
China’s economy has surpassed Japan as the world’s second largest, and its GDP is currently 4.33 trillion. If the economy keeps growing at 10%, it will only take about 13 years for them to catch up to the current US GDP of 14.59 trillion. From there they have a much further ways to go to hit current US GDP per capita, of course, but if the relative purchasing powers of the two currencies adjusts significantly, it might not be that long of a way. If they hit even 1/2 of US GDP per capita, I think we could consider them a pretty wealthy country by that point.
China’s voracious appetite for energy
Such a huge economy needs a heck of a lot of fuel to power it. China’s economy is heavily powered by fossil fuels, and one of the best ways of investing in China’s growth might be to invest in oil. The impact of China’s rising living standards on fossil fuels is going to be interesting. There is simply not enough oil on the planet to satiate a China that consumes as much as the U.S. per capita, so I think that price pressures alone are going to create a big incentive to move away from oil and toward a more diversified mix of energy sources.
As energy grows more expensive, high energy costs are going to place a tremendous pressure on the middle class and the poor as energy grows relatively more expensive. I believe that this will drive widespread use of alternatives such as solar power, and perhaps even a relaxing of restraints on nuclear power. It’s either that or we produce power like China and turn our skies black with the soot of coal.
China’s economy is not a rock of stability
There are potential stumbling blocks that could happen along the way. The Chinese government still has a heavy hand in the economy, and has dealt out plenty of distortionary stimulus. Chinese interventions in the energy markets have caused factories to shut down and have left people freezing cold in the middle of winter. China is still engaged in a mercantilist policy of effectively subsidizing Americans (and Canadians) for purchasing Chinese goods by keeping the Yuan low.
It’s still too early to say who the ultimate winner and loser of China’s exchange of cheap goods for U.S. IOUs will be, but one thing is for sure: The rising Chinese are going to demand increased purchasing power commensurate with their economic growth, and the only way that is going to happen is if the Chinese stop artificially pegging the yuan.
China, the new Christian center of the world
One of the interesting facts that I found out about South Korea when I first arrived was how many practicing Christians there were. I never imagined that an east Asian country could be predominately Christian, which South Korea is. South Korea does not have medieval-style churches like we are used to in the west; instead, one sees dozens of neon crosses on buildings around the city, which indicate the locations of different churches.
It turns out that China also has a burgeoning population of Christians. In fact, China now has more Christians than Italy! How long until China contains as many Christians as say, Europe or the U.S.? I don’t know what sort of economic impacts this would have, but I find it interesting nonetheless.
China is still an oppressive nation
Much of China’s newfound prosperity has been a result of China releasing the free market tiger and relaxing controls on the economy and on society, but China is not a free society. The communist party of China might have given up their failed ideology and economic model that resulted in the deaths and murder of tens of millions of people, but they have not given up all of their power. Abuses are still prominent, such as the suppression of Tibet, and China still has not let go of the idea of absorbing Taiwan someday.
China has liberalized its markets to some degree, but speech is still suppressed and censored, and political power still reigns supreme. The government still interferes plenty in the markets when it wants to. China is no free market utopia, and it still does not have a great deal of respect for property rights, especially the rights of the rural and urban poor (especially when they get in the way of the Olympics).
In spite of all of the less than attractive features of China, one cannot deny that they have come a long way. Today, we talk about the abuses of rural and urban poor; a few decades ago, everyone was so poor that the ones that hadn’t already been purged in China’s version of 20th-century style mass democide were starving and dying by the millions! When you look at things this way, the modernization and rising living standards of China is one of the greatest humanitarian projects of the past century.
Today, China is more free than the west in a few ways, and like much of Asia that has known hard times in the past, it has a spirit of entrepreneurialism and a “can do” attitude that used to define us in the west, before we decided that we could vote ourselves a good life via subsidies, bailouts, and tax rebates, without actually having to work for it.
Further reading
- Beating The Index: China Bluntly Confirms my Oil Investment Thesis
- Business Insider: 15 Facts About China That Will Blow Your Mind
- Zero Hedge: Quantifying The Top 10 China Risks
- Frugal Zeitgeist: Do You Care Where It Comes From?
- Beating The Index: Investing In Oil: My Personal Take
So, reader, what do you think about the rise of China? How can we benefit from the growing power and prosperity of this ancient civilization? I don’t believe in “us versus them”, I believe in comparative advantage. A rising Chinese means higher energy costs, among other things, but it also means opportunities, and the chance for a richer and more balanced world.
Kevin,
Enjoyed the write-up on China. No doubt they are headed to being on par with the US as a world economic power. However, they per capita income will have to rise dramatically for the average individual to have a standard of living close to the average US citizen. Interesting comments on Christianity. I knew lots of Koreans were Christians from living in the DC area and seeing all the Korean churches driving around, but didn’t know it was spreading to China too.
Maybe another few doublings? SK had a pretty good standard of living at $18,000/capita GDP. The cities were all very modern and clean. As costs are lower, I guess their currency goes further.
The Christianity thing is quite interesting. I wonder how big of a part the history of communism in China has to do with it, as the destruction of the old culture probably left a void in place.
What’s fascinating about China is that this could only be the beginning of their growth!!
We’re living through some interesting times I tell you…India will be next on the block.
Gonna be interesting to see how they handle rising energy costs, as well! They have been quite aggressive in securing access to energy resources around the world.
Great write up Kevin! It is fascinating to see the growth and they have not even used the entire potential. Even in India, there are these huge malls, high rises… The standard of living is better than the US I would say.
I think in general that might still be too far of a leap to take, but certainly there are some areas of these countries that are very nice, and make some of our cities seem rather drab by comparison.
Wow, that picture was fascinating. I would like to see a picture of Detroit 50 years ago compared to today, and you would see the exact opposite.
I remember being in grad school in the late 80s and Japan was going to be the new power in the world. That pretty much fizzled out, but I don’t think that will happen with China. It will be interesting to watch.
Detroit’s story has been a sad one to be sure. If one good thing can come out of that, it should hopefully be to learn from the mistakes made over the years.
Perhaps the most important thing that the Chinese can teach us is that situations can be turned around, and past mistakes can be reversed. So long as the will is there, things can be changed for the better.
China + India will definitely grow bigger BUT new concerns are emerging specially from the young migrant workers aged 18 -25. They now comprise of 40-50% of entire migrant workers in China. These young workers are different from their previous generation workers. They don’t want to simply work hard and get small wage like their parents instead they are looking for more meaningful jobs and good working conditions. The recent strikes from Honda plant to other major cities in China by young workers simply demonstrates their plights. Its hard to imagine an average worker gets paid only $140 – $200 (US) per month. At the moment, the major winners are corporations. I hope they get decent wages and good working conditions in coming years.
Hi Das,
This reminds me of the different stages that Korea went through. As living conditions improve, the younger generation isn’t content to stay at the same level as their parents. This is a telling sign of how living standards are rising in China. $200 US per month doesn’t sound like very much to you and me, but for a rural Chinese worker fresh from the countryside, it might be quite a big sum. In comparison to a couple decades ago, it’s a big improvement. I hope that the law in China can take a balanced approach, and simultaneously recognize worker’s rights to form a collective contract, as well as an employer’s rights to hire anyone willing to work.
Hey Kevin,
China certainly is growing. I am curious though how much of this growth is inflated/distorted. You mentioned the heavy hand of the Chinese government with regards to China’s economy. It is so interwoven, it is hard to tell.
Sooner or later the Yuan has to rise. This will lead to some pain as the Chinese are not yet prepared to consume their country’s massive output. While in one sense there might be a lot of bubbling going on, I don’t see it as a bubble in the long scheme of things. The country is huge, and there are hundreds of millions of people that are not yet part of China’s modernizing economy.
Wow, what a great comprehensive article you’ve written about China! I was spellbound the entire time!
I like to say that China has all of the advantage capitalism and none of the disadvantages!
On the alternative energy front, I believe that China is the largest producer of many of the technology too. I believe I read that they are the biggest wind turbine makers, and I know they have a lot of solar companies (like SunTech, JA Solor, and even SolarFun).
It seems like an exciting time for China!
As long as they keep their focus, it should be good! I remember there was a time that Japan was suppose to pass the U.S. with the GDP, but they stalled. Japan is still a great country too, but the stock market has moved forever it seems like… I’m betting China will learn for Japan’s economy.
Not quite sure what happened in Japan’s case. Salaries have still been increasing, and they do have a very high standard of living. One has to wonder just how high they could have gone if not for the massive make-work schemes that built a thousand bridges to nowhere… placing them in massive debt for questionable results.
Nice first two pics!
Do you plan to relocate to China or do any business in China?
Hey Sam,
I would definitely like to spend some time there experiencing the country and culture. I have to work a little bit more on the dream to make it happen, but otherwise I will still go there for a trip sometime not too far away, and if I can find a way to go there on business, I will do it for sure.
The most amazing thing I did was back in 1997 when I visited Beijing and rode my bike from the 3rd ring road at sunset to the Forbidden City. Unbelievable experience!!!
PS Just linked up to this post as part of the giveaway contest.
Cheers
http://www.financialsamurai.com/2010/09/18/even-millionaires-cant-exist-free/
That is pretty cool, Sam. Must have been hair-raising with all of that Beijing traffic. Thanks for all of the great promo!
Nice article about China. They are the new Japan but one of the major difference is they have a bigger market because of their population or cheaper labor. A lot of US companies notice this and they want to utilize that. US Companies would like to build their manufacturing plants there while US franchisors wanted to expand their market as well. Even the NBA is taking advantage of this huge market.
That’s actually a good point. One area where the US can compete is in the long history of established brands that Asians are in love with. In that sense, Asians are more materialistic than we are!
Really good article. Very well thought out. Those before and after pictures sure do capture one’s attention.
I have been to China, about 20 years ago. Thus, I can relate to those pictures, in that I personally saw the “before” pictures. My trip was a part of a student exchange program when I was younger, where a group of American students went there for almost a month.
It was fascinating to go there. There were very few high rises in Beijing, at least from what I can see. The airport was downright creepy, and was worse than any airport I have seen since then. Keep in mind that I have traveled a fair amount. There was one – just one, U.S. fast food operation in China at the time, as far as we were told – it was a KFC in Beijing. Could be B.S. since our chaperones wanted to absorb Chinese culture, but let’s take it at face value.
We were warned not to take pictures of certain things, and this happened multiple times. I am certain that we were being closely watched while there, in case we went exploring in the evening. It was fascinating in many ways, seeing the Great Wall, dining at the Great Hall of the People, seeing Tiannamen Square, etc. Yet ominous as well, as it was clearly a controlled culture compared to what I was used to in the US.
With that personal experience, I do find it absolutely fascinating how China has changed since then. It’s like 20 years of calendar time has brought 60 years of advancements in SOME things, particluarly in economic strength and the visible signs of it – as evidenced in those pictures above. China is a growing economic beast, no question about it. Being an ancient culture, having a large population, and moving forward the way it is, it’s not the China from 20 years ago.
India is another country to watch. The education system in India, at the highest levels, is impressive. As an American, getting an MBA here at home, I noticed that we had a number of Indian students enrolled who had previously obtained undergrad degrees at IIT. When you think of IIT, think of their version of MIT, except harder to get into. Those students were remarkably quick minded and a step ahead – particularly quantitatively.
In terms of what’s going on in India today, they have a burgeoning middle class, and significantly increased wealth. Indian companies are competing in many spaces – technology, healthcare, steel, etc. There continues to be abject poverty there, but the progress has been impressive of late.
Anyway, the point is that I see that there are two ancient cultures with many strong attributes, that are drivers in the changing world economic landscape. As a world citizen, I’m fascinated by what’s going on. As a loyal, proud American, my primary interest is in my country keeping its place at the head of the table, so to speak. A high quality standard of living in my own country, and an upper hand for the US is the positive outcome I’m looking for.
It’s a bit of a flag waving viewpoint, but I can appreciate what’s going on intellectually and as a global citizen, while being primarily interested in the impact on the US and our neighbors to the north in Canada.
It’s incredible the changes that have come over the past 20 years. If Americans in the aggregate really do want to maintain a high standard of living, then they had best stop treating finances as if they had a black credit card with an infinite credit limit… despite what some economists think, messing around with numbers and bank balances does not generate real wealth and prosperity.
The best things that Americans could do is to realize that their government will not save them from the changes coming ahead. Even governments are subject to the laws of economics, and even the US government, with all of its military might, is not immune from this. What made the US great in the past was values of liberty, justice, and the opportunity to pursue happiness. The emphasis was not on equal outcomes; it was on equal treatment by the law.
Today, that equation has reversed. No longer is the US a beacon of prosperity as it was for millions of immigrants in the first half of the last century, and nowadays, people are treated *un*equally by the law, in the hopes of obtaining equal outcomes in some spheres. In other spheres, people are free to make private profit, but everyone can equally share in the losses.
To me, the government is like an old corporation that was founded on good ideals, but hasn’t faced some competition in some time and is declining from internal rot. I hope that as China and others become more successful and competitive, that they can bring increased weight down on the US government to adapt or get left behind. It would be nice if it didn’t have to come down to that, but it seems that without that pressure to survive, politicians lose complete touch with reality.
I’m glad to see China doing so well on the world stage. I hope these changes bring more freedom and opportunity to their people. And, I hope their leaders start to embrace their new responsibility to influence other nations, such as Cuba, North Korea and Iran. They could become a stabilizing element to help make the world a safer place.
I think it’s only a matter of time before other developed nations force China to float their Yaun and then their unfair trade advantage will go away. They will still have cheap labor and natural resources, but they will have to compete with the rest of the world on a more level playing field. I watched this happen to the Japanese, after the Yen rose and countries stopped letting them dump their products. Being a world leader takes more than just a currency advantage.
The funny thing about China’s unfair trade advantage is that they are hurting themselves by going about it. In return for a bunch of Chinese goods, the USA unloaded what, a trillion dollars of paper assets into Chinese hands?
However, in the long run, the Chinese economy is built on more solid ground. It’s built on making things, whereas the US economy is built on consuming them. Maybe we helped get them jump-started, but it’s kind of silly to think that they *need* our IOUs… right now it’s a catch 22 because they are stuck with the IOUs they have, but I don’t doubt that 1.4 billion Chinese can find a way to use all of that industrial capacity for themselves.
It will be very interesting to watch how this story unfolds over the next ten years.
I really hope that the story is going in the right direction. If the Chinese can show USA that a level of good business and better conditions for their people can be acheived from such nasty beginnings maybe it will shape business and push USA to wake up and change some of their practices.
The atrocities the Chinese government still carry out make me uneasy but if things are improving at the rate you say then I am rooting for them to come up clean and sort everything out.
Ironically, China has been showing the USA how to party while others produce the goods that we need to live. Gotta wonder who’s the bigger fool: China for keeping themselves poorer than they need to via a low currency, or the USA for going on a binge of consumption by exchanging paper assets for real goods?
One thing’s for sure though: China has given themselves the upper hand with this arrangement. Some people think they’ve built up a massive bubble, but hey, should the Chinese start consuming more of their own product and let the currency appreciate, then I don’t think they’ll have any problems finding a use for all of that capacity. The Chinese market is huge…
The story of China is certainly amazing. No doubt it’s going to continue to be an economic miracle in the long run.
I remember back in the late 1970s when Deng visited President Carter. The Revolutionary Communist Party protested that Deng was sending China down the capitalist road. They claimed Mao was the fifth member of the Gang of Four. I thought they were crazy.
Eight or so years later I was watching a documentary on modern China and watched three pretty girls dance around waving red scarves and singing. Not too long before, they would have been celebrating how the East is Red and Mao is the Great Helmsman. But the translation was they were singing about the wonders of washing machines and televisions, and “to get rich is glorious.”
I knew then the Revolutionary Communist Party was right, and thank goodness.
I believe that sooner or later they’ll have to become a democracy as well, and I just hope the transition is nonviolent.