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China overtakes Japan as world's #2 economy

Here is the direct source in Reuters that confirms this development:
China overtakes Japan as No.2 economy: FX chief | Reuters

Business people in Europe are now starting to learn Mandarin as part of their degrees as well as English; Chinese business is in every corner of the world, and their country continues to develop at an unprecedented rate. Although they have a capitalist economy, their government is fascist and totalitarian in nature.

Are we prepared for the political and economic implications if China becomes our primary supplier to our economy? Will we have to swallow our pride and increase our business with a government that is in opposition to our values?

I thought Japan was supposed to own the world by now? :confused:
 
The U.S.A. is partly to blame for this as poor consumers have no choice but to buy their cheap crap:(

Also we are already in debt to China!!
 
The U.S.A. is partly to blame for this as poor consumers have no choice but to buy their cheap crap:(

Also we are already in debt to China!!

That's going to change. For starters, one-way trade flows can only go on as long as the consuming nation has consumers with discretionary income. That's problematic with Americans, who are basically tapped out. All of that cheap crap is about to get cheaper--much cheaper, as companies panic and offer more "Three for the Price of Two" and "50% OFF!" specials that don't show up in the inflation stats. Secondly, China's economy is about to hit the skids as its central bank tightens credit in an attempt to dampen a real-estate bubble. Analysts are talking about a soft "Goldilocks" landing, but where have we heard that before? :confused:
 
You do realize that if you define the PRC as Communist in terms of economics, then the US is far more Communist then the PRC is.

China is arguebly the most capitalistic country in the world right now.

Not capitalist if you consider how open the economy is... and there is a lot more state control and finance than most people thing. Restrictions within the country make it VERY difficult for foreign companies to gain access, even for products that they make in China... that is designated for export with very little of it consumed inside the country...

Most capitalistic? Hardly... they currently practice a form of neo-mercantilism...
 
That's going to change. For starters, one-way trade flows can only go on as long as the consuming nation has consumers with discretionary income. That's problematic with Americans, who are basically tapped out. All of that cheap crap is about to get cheaper--much cheaper, as companies panic and offer more "Three for the Price of Two" and "50% OFF!" specials that don't show up in the inflation stats. Secondly, China's economy is about to hit the skids as its central bank tightens credit in an attempt to dampen a real-estate bubble. Analysts are talking about a soft "Goldilocks" landing, but where have we heard that before? :confused:

That cheap crap can't get much cheaper as labor costs within China are in the process of going up, with large numbers of foreign operations in China now forced to give raises to their employees...
 
That cheap crap can't get much cheaper as labor costs within China are in the process of going up, with large numbers of foreign operations in China now forced to give raises to their employees...

So a supplier to an American company gives a worker it's paying fifty bucks a month for a fourteen or fifteen hour day a raise to fifty-five bucks a month. Who cares? The labor component of the final value of goods sold in America is so low as to be ludicrous. And they still have to find a buyer with the discretionary income to pay any price.
 
So a supplier to an American company gives a worker it's paying fifty bucks a month for a fourteen or fifteen hour day a raise to fifty-five bucks a month. Who cares? The labor component of the final value of goods sold in America is so low as to be ludicrous. And they still have to find a buyer with the discretionary income to pay any price.

There are a lot of Taiwanese companies operating factories in China. They often operate on razor thin profit margins. There has been a lot of complaints here in the local media, especially from Hon Hai (also known as Foxconn) about the impact of the higher labor costs. Several have already moved to Viet Nam ... Taiwan is now the number #1 foreign investor in Viet Nam according to local media... Surely if Taiwanese companies are having profit margin issues in China, MNCs from other countries are as well...
 
Just thought I should note for you all that capitalist =/= free market.
 
There are a lot of Taiwanese companies operating factories in China. They often operate on razor thin profit margins. There has been a lot of complaints here in the local media, especially from Hon Hai (also known as Foxconn) about the impact of the higher labor costs. Several have already moved to Viet Nam ... Taiwan is now the number #1 foreign investor in Viet Nam according to local media... Surely if Taiwanese companies are having profit margin issues in China, MNCs from other countries are as well...

I think that would only be a concern in relatively low value-added industries and products in which the labor component is a large part of the cost of production. But I imagine that the labor component in something like an Apple iPod is relatively low. Where it's not, and where efficiencies or margin contraction can't be found somewhere along the supply chain, then one of two things will happen: either the end purchaser will find new markets for its goods, or the supplier will go bankrupt, because you can't get blood out of a turnip. The U.S. has had no net increase in employment in ten years. It's about to end the decade with a decline in real median personal income. Total credit market debt is more than $52 trillion. American households simply don't have the money to buy a continuous supply of discretionary consumer products.
 
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Just thought I should note for you all that capitalist =/= free market.

Of course it does but it comes with a price. There are certain people we/U.S.A. should not do biz with.
 
Not capitalist if you consider how open the economy is... and there is a lot more state control and finance than most people thing.

Yes and no. The fundamental nature of how people make money is indeed capitalistic. China's financing system is more properly described like Japan in the 1970-80s and Korea in the 80s.

Restrictions within the country make it VERY difficult for foreign companies to gain access, even for products that they make in China... that is designated for export with very little of it consumed inside the country

That doesn't change the argument, It merely deals with the focus of the firms within China.

Most capitalistic? Hardly... they currently practice a form of neo-mercantilism...

Depends how you define neo-mercantilism. Been to China lately? There's plenty of foreign imports from consumer goods to cars. Furthermore, extracting profits from China is not a hard task, unlike say Thailand circa 2001. Furthermore, the capacity of Chinese to do what they please in business far expands what Americans can ever hope of.
 
Yes and no. The fundamental nature of how people make money is indeed capitalistic. China's financing system is more properly described like Japan in the 1970-80s and Korea in the 80s.

That doesn't change the argument, It merely deals with the focus of the firms within China.

Depends how you define neo-mercantilism. Been to China lately? There's plenty of foreign imports from consumer goods to cars. Furthermore, extracting profits from China is not a hard task, unlike say Thailand circa 2001. Furthermore, the capacity of Chinese to do what they please in business far expands what Americans can ever hope of.

I have lived in China, make occasional trips there... remember, I live less than 200km from China. And yes, they are neo-mercantilist. Their entire economic policy is about maximizing exports and minimizing imports. Imports are NOT all over the place and those that ARE there are either knock offs or due to the manipulation of the exchange rate are out of reach to the vast majority of Chinese.

You do see foreign brand names in China, but the vast majority are produced IN China and are NOT imported. I HIGLY recommend reading "In the Jaws of the Dragon: America's Fate in the Coming Era of Chinese Dominance" by Eamon Fingleton.

BTW, you made comparisons to Japan and Korea, those countries have been and still are guilty of engaging in their own neo-mercantilist economic policies. Where do you think China learned it from?
 
A communist economy is bound to implode. They are in a growth bubble, and when that bubble bursts they are going to be in serious trouble.

They are more corporatist then communist. They call themselves communists but if you read the Communist Manifesto it doesn't come close.
 
It was eventually bound to happen. China is 20 times the size of Japan. Also, Japan has limited natural resources.
 
A lot of mumbo jumbo...

The point is your Chinese product costs are so much less because of a lot of factors that weight the balance. Depending on the product, they may use slave labor. We don't. Even paid labor is paid far less than what our workers are paid. Communist China provides "free medical care" and "retirement" benefits that would be unacceptable to our people. What we provide costs more, but is superior. The fact is, it would be illegal to run a business in the US the way it is run in China.
They soon will find it impossible to pay those healthcare and retirement benefits. They will have one of the oldest populations in the world, and the numbers will be staggering.
 
They soon will find it impossible to pay those healthcare and retirement benefits. They will have one of the oldest populations in the world, and the numbers will be staggering.

Yea, we should execute all people over 60 to save money!

On a serious note, Chine overtaking Japan as the worlds #2 economy was bound to happen, just as China will overtake the US soonish too. I mean 1.5 billion people is one hell of a market, and starting a near zero.. it can only go up!
 
On a serious note, Chine overtaking Japan as the worlds #2 economy was bound to happen, just as China will overtake the US soonish too.

FWIW, Goldman Sachs estimates that China's economy will surpass the U.S. economy by 2027.
 
FWIW, Goldman Sachs estimates that China's economy will surpass the U.S. economy by 2027.

Hmmm it's certainly possible. But alot can happen in that time. China's prosperity is dependent on a massive growth rate. Fueled by every single natural recourse the world has.

From water, to zinc, to copper, to steel. If these things rise in price sharply as is likely to happen in the next few years, their economic growth will fall dramatically. Such a dramatic fall in growth could lead to huge changes in China quite possibly political and social ones, not to mention a possible destablization in population because of the severe population control methods instituted in the past.
 
Hmmm it's certainly possible. But alot can happen in that time.

Yes, it can. For example:

China’s property market is beginning a “collapse” that will hit the nation’s banking system, said Kenneth Rogoff, the Harvard University professor and former chief economist of the International Monetary Fund....

Chinese authorities intensified a crackdown on property speculation after announcing the economy expanded at an 11.9 percent annual pace in the first quarter, the most since 2007. Measures have included raising minimum mortgage rates and down payment ratios for some home purchases. Officials may also start a trial property tax, according to state media.

Sales Dive

The efforts have contributed to a slump in real-estate sales, while prices continue to climb. The value of property sales dropped 25 percent in May from the previous month. The increase in prices, at an annual 12.4 percent in May according to a government survey of 70 cities, was down from a 12.8 percent advance in April.

“You’re starting to see that collapse in property and it’s going to hit the banking system,” said Rogoff, 57, who also serves on the Group of 30, a panel of central bankers, finance officials and academics led by former Federal Reserve Chairman Paul Volcker. “They have a lot of tools and some very competent management, but it’s not easy.”

China Property Market Beginning Collapse That May Hit Banks, Rogoff Says - Bloomberg
 
FWIW, Goldman Sachs estimates that China's economy will surpass the U.S. economy by 2027.

Had heard 2032 but okay. But there is always a big "but"... if the political stability of the country can be maintained. This goes for any country of course.
 
Hmmm it's certainly possible. But alot can happen in that time. China's prosperity is dependent on a massive growth rate. Fueled by every single natural recourse the world has.

From water, to zinc, to copper, to steel. If these things rise in price sharply as is likely to happen in the next few years, their economic growth will fall dramatically. Such a dramatic fall in growth could lead to huge changes in China quite possibly political and social ones, not to mention a possible destablization in population because of the severe population control methods instituted in the past.

I fully agree. There are many variables that could lead to China's either becoming the largest economy sooner or later than the Goldman Sachs estimate. If past experience with rapidly developing nations is representative, China will more than likely face at least one very significant economic crisis down the road. Whether China's regional housing bubbles or a future energy shortage or even a U.S. debt/currency crisis or some other mechanism triggers that potential crisis remains to be seen. But the road from developing status to developed status has historically been a very bumpy one.
 
Well it's no wonder. We keep buying their crap. Meanwhile their people work for little money, have little savings, and are taken advantage of by the government at every opportunity they have. Typically we'd have sanctions against such countries. But where the hell else will we get lead painted children's toys this cheap!?
 
There are a lot of signs that China is about to have a very serious fall in their economy. This will probably be extremely painful and cause social unrest including what will probably be another Tiananmen-type scenario. However, it will be a flash in the pan and likely spark off a new period of reform.
 
China's socialized medicine is rather poor and most people would rather go to the private medical centers if they can afford it. Pensions supplied by the government are rather poor, only those that have them from the SOE's they worked for are well taken care off.


Lastly GPD (ppp) is real. The cost of living in parts of China outside the Shanghai, Beijieng, and Hong Kong is drastically lower then that of the US or Canada. In what are the hinterlands of China, Jilin for example apart from hotels, western food like McDonalds, life costs 1/3-1/5 that of Canada. Bus's are $0.20 vs $1.8 CAD ( side note buses running in cities seem to be privately owned), a taxi ride is 1/5 that of Canada.

Will China have a few economic crisis's over the years, of course, will China eventually overtake the US in GDP, yes. I think it will be faster then most predict. This is based on GDP per Capita reasons. Despite a rather high GDP number, per capita it is still quite low and has plenty of room to grow drastically
 
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