The Tiger is coming to the surface. The New decade has already come in the West, and in China we are again in this no man’s land between the Solar and the Lunar New Year, between the Bull and the Tiger. It is time to look back and see where we stand.

In World politics time is measured in decades, and many will call the 00s the decade of China. It is just a simplification, these 10 years are nothing but part of a longer process started in 78, and probably still ongoing for another decade more. And yet, if we have to choose one event that marked the decade in World politics, like the end of the Cold War marked the 90s, the rise of China is the most reasonable choice. No other event is likely to be be more decisive in the history of the World.

In the first post of this Year End edition we proved that, within the general growing trend of the decade, 2008 was a peak for China’s presence in the World media, and 2009 has gone back to relatively normal levels. This peak cannot hide the general trend: that China is growing inexorably to become a World superpower and that it is already changing the power balance of humanity.

Measuring the Chinese decade

If we have to chose one single parameter to measure this rise, it is the economy that can give us the best clue. There is no point in going to the decimals when analyzing decade trends, so the calculation is simple: China has grown roughly 7% faster than Western countries in the last decade, and all seems to indicate that this will continue into the 10s.

The calculation* is straightforward:  1.07^10 = 2

At a rate of 7% differential a year, the size of China’s economy relative to the Western economies is doubling every decade. Today most estimates of GDP place China between 1/4 and 1/2 of the USA economy, depending if it is measured in nominal GDP or in PPP. This means that, if nothing else changes in the next decade, Chinese economy will be the biggest in the World anytime between 2020 and 2030.

The consequences of this calculation are enormous, and they are already operating today. That is because in politics we behave like in the stock market: decisions are made taking into account the foreseeable future rather than the present. China is already displacing the EU in World politics, even if it is a fraction of the European economy, even if it doesn’t want to be the protagonist. The media and the politicians are betting on the future value of China.

The Question of the Decade

Of course, nothing guarantees that the growth patterns of the 00s will continue in the 10s. There is one important school of thought that insists on the unsustainability of the Chinese system. They mention corruption, growing inequality, lack of civil rights and a civil society, repression of creativity and free market, the inability to build World class brands and a financial system in disarray, among other problems, to justify their prediction that sooner or later the Chinese economy is bound to crumble.

Those of us who live and work in China know that these problems are serious and very real, and that somewhere down the line there is bound to be a serious readjustment. And yet, the same predictions have been made regularly almost every year in the last three decades, and the collapse has not materialized.

The real question of this decade is When?

Will the Chinese economy stop growing before or after it has become a superpower as large as the USA? Will the Chinese seriously demand more rights and liberties before or after China has become a developed country? Will the economic and political readjustments be done progressively with the new generation of Chinese leaders, or will there be a dangerous explosion in this decade?

We don’t have the answers to this today, and you should not believe any China expert who claims to have them. All we can do is frame the question above, and watch out for early signs to answer it in the coming years.

There is however one statement we can make today. Looking at the World, it is obvious that many important players are already betting on the rise of China, and this view is gathering more support every year. As we have seen above, to the extent that the majority in the World believes in the superpower scenario, China is ALREADY a superpower. The political power comes years in advance of the GDP, and the new World order is already a fact today.

Photo: Eric Risberg

*This is an engineer’s calculation, the nightmare of any serious mathematician. And yet, most bridges we do are still standing, and when we speak of decade trends anything more accurate than this is a joke.

I enjoyed reading this article by Evelyn Chan on the Carter Center blog.  It is clear and well written and in my opinion it is right on the money. It’s the article I would have liked to write on the stimulus package (h/t  CDT)

When it comes to Chinese economy I have always been a bit of  a pessimist. This year I am getting to understand better the situation of public finance – I recently read the informative Finance and Factions, by Victor Shih-  and now the outlook looks even bleaker. On the surface China is doing well, but the more you look into the details the more unsustainable it looks. Which is exactly how systems look when they are about to snap.

And yet somehow I will not be surprised if in 10 years time we look back and find that we are still in the same situation.  After all, there were experts writing similar predictions already 10 years ago…

Last year I wrote a post about foreign entrepreneurs in Shanghai that included a Big Question with a link:  Who gets rich in China? The page attracted a ridiculous amount of search engine hits considering its dumb content, which proves that it was indeed a hot question. Time passed and I never got around to writing more, but my intention was just to echo the phrase I so often hear from disgruntled expats:

“Who gets rich in China? The Chinese!”

I am afraid I don’t have a better answer now than I had then, but recently I’ve been talking business with some entrepreneurial friends, and one problem has come up so many times that I think it is worth a post. And I hope this is useful for foreign start-ups in China to avoid making a bad decision from day zero and ending up, a few years down the line, mumbling the bitter phrase. The problem I refer to is the market dilemma, otherwise called the expat trap. Click to continue »

From the post left unfinished last week. Some of the main arguments read (or heard) in China Crisis discussions:

The Time

Economies don’t grow indefinitely.  Low cycles follow high cycles and after 30 years it is about time. China cannot break the laws of economics, so the recession must necessarily come in the next X years. The country hasn’t prepared itself politically and psicologically to face this period. In the end, we are sure to have trouble.

Of course, this argument is of little value without the X, and many proponents of a time limit have failed in the past. This is the field of technical analysts and other mystical thinkers. Mythology also plays a role:  In Chinese history, cataclysms mark the end of a cycle. An earthquake preceded this crisis, and a solar eclipse is coming in July, the dynasty has lost its virtue. These arguments tend to work better with a bit of hindsight.

The Markets

The World’s economies are interdependent today. China’s economy is largely dependent on exports and FDI. The weight of these external factors in China’s growth has been much discussed, but regardless of the exact numbers, few doubt that it is a significant motor of the economy. External motors failing, China turns to internal ones: investment and consumption. Today, strong public investment, mostly in infrastructure and energy, is making up for the loss. Click to continue »