America China – The Power is Moving!

When democracies loose economic power democracy itself is weakened. Already now China has the third largest economy in the world and within 5-7 years it will be the main producer of goods globally.

Hu Jintao may be shorter but China has the upper hand

The US on the other hand, has a huge budget deficit and is already borrowing heavily, not least from China. So no wonder China is already starting to show its power.

At the Copenhagen climate summit Obama and many other leading heads of state took part. China however, sent an insignificant deputy foreign minister with no ability to take decisions without confirmation from Beijing. The Chinese government also protest against US actions with a new vigour and confidence.

China continues to produce and Westerners keep on consuming on borrowed money, not least from China, which is an equation that doesn’t add up. Soviet communism declined because the economy didn’t add up but that’s not the case with China whose economy is capitalistic while the government keeps a firm grip on power and its people.

According to the OECD, Western countries’ debts in 2008 were equivalent of to 100% of their GDP. China on the other hand has a deficit equivalent of 21 percent of GDP. So not only is the Chinese economy performing very well, they are also partly bankrolling the West. And money talks.

Unless the democratic part of the world, like the Chinese, start saving and stop consuming on borrowed credit, democracy as a whole will loose out. The US and Europe are the worlds largest democracies and China is the world’s biggest dictatorship. It does matter who has the best performing economy in the world. To ignore that would be a fatal mistake. But for some reason it seems the West can not be bothered to make an effort to stop power slipping away. That the center of the world is moving I have known for a long time, but what surprises me is that the West doesn’t seem to do anything to stop it from happening, or at least delay it. Where’s the fighting spirit?

photo: FlickrPhotosAccount

28 thoughts on “America China – The Power is Moving!

  1. Hi Katarina,

    Does it really surprise you? I think the power is not slipping away, it is just shifting location, the ones with the power are and will always be the same, weather they make their money in the West, the East, the South or the North for them it makes no difference as long as they make it. As far as –Where is the fighting spirit?– I think we fight every day so the spirit is there, what is missing is the sense of “brotherhood”, we have become individual fighters.

    Manuel

    1. No Manuel, as I wrote it doesn't surprise me since empires come and go and I have known for long that the next empires are China, India and Saudi/the Gulf.

      However, that Westerners can not make an effort to do something about it does surprise me and it's sad. The Chinese and Indians would fight. In other words Western decadence shows that it's time for another empire.

      To think that the ones with power will be the same I believe is wishful thinking. Who owns a large chunk of Western industry already?

  2. Ctarina,
    I agree, by saying the ones in power I was not refering to nations but to individuals or groups that control the wealth of the world, they are the ones defining where the “new” empires will be.

  3. If you get a chance I recommend reading "Past Due" by Peter S. Goodman. The book presents a pretty accurate assessment of the macro and microeconomic effects of Chinese 'lending' to the American public and how as a society we've become heavily leveraged with our incessant appetite for credit.____As an American I am deeply troubled by the lax attitudes my generation (under 35 years of age) has toward saving and toward taking an active role in shaping the future success of our country. People here are largely apethetic to the future and the sense of entitlement and search for instant gratification will be our undoing. ____I do believe that the economic crisis that has unfolded the last two plus years is one that could be our saving grace, provided our leaders in Washington don't continue to pump borrowed money into the economy. On the consumer level I think we desparately need a prolonged recession in the U.S. for my cohort group to change its behavior in spending and taking on unnecessary debt. Maybe we'll revert to the lessons learned by our grandparents and great-grandparents following the Great Depression and spend only what we must, saving the rest for troubling times.____

    1. Scott I hope you are right.

      However, Americans has been more screwed up by big business than Swedes have by socialism. So I'm not sure it's enough. Especially now that the Supreme Court has decided that company = person according to the first amendment. From now on big business will hence decide who is elected not only in politics but also for the judicial system. Don't know why but somehow I doubt that they are interested in Americans saving and taking an active role in shaping the future success of the country. Hopefully I'm wrong.

  4. I do believe that the financial crisis has shown the US (and Europe) the necessity of changing their habits, and living within their means. President Obama signed a new bill just yesterday that forces Congress to "Pay as it goes" – in other words, they cannot spend money in one area without an equivalent saving elsewhere.

    The message from Western govenments is also fairly clear – you need to save more! I suspect we might see this reinforced through tax breaks on interest earned from savings.

    Paradoxically, the Chinese have also recognised that they need to get their own domestic spending up or their economy is too reliant on others, so are now embarking on a drive to get people to save less and spend more there.

  5. Catarina, it is the western LEADERS who cannot be bothered. There are many citizens doing all they can, saying all they will and being all they are to stop the insane departure from common sense spending. As most individuals know from their household budget, if you don't have it coming in, you don't spend it. But the USA government in particular, acts as if they believe they can keep raising taxes from the higher producers do more spending. In looking at my husband's pay stub every month, I can tell you, as Americans we work now work through May each year, that's 5 of the 12 months, just for the government. By that I mean, our federal income tax, social security tax and medicare tax doesn't reduce one bit until end of May. And then, it's just reduced.

  6. A great analysis indeed. China, Taiwan and South Korea had already bankrolled US mortgage market for a while…not doing so much any more. I agree that the world's economic CG is moving fast to Asia and will have political and economic implications for US and Western Europe. However, China will have to expand its internal consumer market. Right now, it depends heavily on exports to Europe and USA. If China can have a middle class with world class buying power (like US and Europe), then it will rule the world. Short of that, its political and economic clout will remain limited for a while.

  7. Wow, what a great article. Yes, it is scary. I'm not sure where it will all land, but I have various friends who have started buying silver in anticipation of the worst. I still hold out hope that our economy will not collapse, but something must change.

  8. We must decrease spending. We can not continue to spend more than we have. Americans in general spend more than they make. I think many Americans are beginning to learn they must live within their means. Hopefully our government will begin to do the same.

    1. Yes Julia, Americans are far worse than Europeans in that respect. Do believe that quite a few Americans have learnt their lesson during the global crisis though. Catch is it will be difficult for them to get out of debt becasue other Americans are cashing in on their predicament. Hopefuly the new finance regulations will stop some of that though?

  9. I echo Patricia’s comment that it is the elected officials who are ultimately responsible for the reckless spending. It’s disheartening to see what is happening to our great country. Hopefully, in September, we’ll seize the opportunity to send a message to our politicians.

  10. Dont be surprised if America and then Europe rebel against the economic policies of Chiina, withdraw and close their markets to outsiders and only barter on goods on a very limited basis with the international community, similar to China used to.

    What do you think will happen then?

    1. Tim I would be surprised since the US government is in debt to China, a debt is increasing on a daily basis. What impact will that have on US trade policy? Money talks as we know.

      The West have already tried a bit of that which infuriated Western consumers. Remember the Chinese bras?…

      But having said that you should never say never. Time will tell.

  11. China while a huge exporter and manufacturer, built this capability on cheap production and poor standard of living. While it LOOKS as though China is turning into the new bear in the room, we cannot forget that change affects China as well. What China truly represents to the world is uncertainty because what we DO know, is only what China's communist government WANTS us to know. ____We can't forget how the USSR managed to fool the entire world for 50 years, before it became impossible to hide the truth, that it was collapsing. ____Communism and dictatorships are notoriously inflexible. ____While China may be able to do well in this current global economic downturn, much of their success stems simply from the fact that they were already working on the cheapest end of the spectrum, so the downturn had less effect on them.____BUT, they are not in a great position to maintain this standing when the global economy strengthens, and democracies have a superior advantage. They are VERY flexible, very tightly knit to their nieghbors, and are the biggest sources of innovation and progress. __China holds a lot of debt, but this practice can destroy economies.__ China is not immune.________

    1. Paul, sounds to me that what you write is what you want to believe. Sure China, like all other countries in the world, has it's problems. By the way, they are not, like the US govenment in debt. On the contrary they have a huge surplus.

      There is no comparison between Soviet and Chinese communism. What they have in China now is not communism, it's capitalism with a totalitarian regime. The Chinese people have always been and will always be born capitalists.

      China is badly affected by this economic downturn, just lika all other countries. And the Euro Zones problems will have bad effects on them since Europe is their largest export market. But they are still, unlike most other countries, growing.

      Have you thought about the fact that they are bailing out your government and what consequences that may have for say, US trade policies?

      A huge difference between China and the West is also how hard its people work and save. In the West however, the young generation feel they should get money for nothing, actually that they are entitled to it, which is even worse.

  12. Forget about democracy, communism or dictatorship. It is all about capitalism mind set, which is greediness. The WEST capitalists want to get high profit and move manufactures to China for cheap production cost without looking at social responsibility of that country while they are forced by regulation and social pressure of their own country. The Chinese wants to make money out of WEST by scarifying its own people, i.e. low level people's heath and safety, its own environment and effect to global environment, nature resources, the different way to get high profit out of the product they produced by artificially making low labor cost. No one can solve this unless one day this planet or part of this planet is no longer a livable. The collapse is not China but this planet just like the movie 2012!!!

  13. Wealth and power control today's generation. I'm scared what would be the result because of too much greediness upon other countries.I still hold out hope that our economy could recover.

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