Wells Fargo has written an analysis which predicts that China will become the world’s #1 economy in 10 years.
They see two structural problems.
Trends in local demographics have been working against China for over a decade. China’s population is aging. The working population has been in decline for years and will continue to shrink.
China’s other structural challenge stems from its over-leveraged economy. As of Q3-2021, system-wide leverage in China amounts to 330% of GDP. Leverage has been a key tool to fuel growth in China; however, authorities have come to the view that borrowing is not a sustainable long-term growth strategy. As a result, Chinese authorities have committed to deleveraging the economy over time. As deleveraging progresses, China’s longer-term growth prospects are likely to diminish.
Modeling many different assumptions reveals the level of dollar denominated nominal GDP in China will reach $37.9T by 2032. The U.S. economy’s nominal GDP level may only hit $37.4T by 2032, about $500B smaller than China’s nominal GDP.
This article analyzes several variables inside each country, including central bank monetary policy and demographics. It doesn’t analyze the financial relationship between China and the U.S.
The U.S. has a large trade deficit with China. The U.S. also owes China a boatload of money. It’s hard to say whether or how China will leverage these comparative weaknesses to its own advantage.
They see two structural problems. 1. Trends in local demographics have been working against China for over a decade. China’s population is aging. The working population has been in decline for years and will continue to shrink.
The negative effects of China’s former “one child” policy (1980 to 2015) and its interaction with those cultures’ customs, traditions, and expectations - as well as global economic and social trends - will echo for years. Many of them will be obvious and quantifiable.
The positive effects will be more difficult to discern and measure, but I doubt that they will be greater than the negative effects.
It must have been in the late 80s to early 90s I read an article about a Chinese top-level business executive who, unusually for people of his economic status, went to the mall himself (rather than sending a flunky) and, while there, observed the people around him. He noted that family groups mostly came in two varieties. One was a little girl with one or two parents. The other was a little boy with two parents and two to four grandparents. He thought about that for a while, and when he got back to the office (mostly staffed by men) he told his subordinates to start planning for the day when most people whose attitudes and personality made them fit to hire would be women - many of them single mothers - because too many of the men would be spoiled brats with strong senses of entitlement.
The U.S. has a large trade deficit with China. The U.S. also owes China a boatload of money. It’s hard to say whether or how China will leverage these comparative weaknesses to its own advantage.
Wendy
That opinion is not in any way how econ works.
We paid China all along. China has our dollars as an interest free loan from us. Even if China spends those dollars else where on the globe eventually those dollars need to be spent in the US on our goods.
Just looking at a series of years say three decades or four gives you an impression does not mean much. The economic matters go on over hundreds of years.
The treasuries bought by China have remained at around 8 or 9% of all of our outstanding debt. As far as I know, but it has been about four years since I last looked, Japan has slightly more of our treasuries. The FED has more yet. If you combined all the EU nations you’d get a larger percentage than China’s. And the American public holds most of it as you include the institutional holdings.
In other words there is ZERO leverage in China’s court.
Put in street language…if I owe you a dollar you can come after me in some mean terms. If I owe you a million dollars you better be nice to me.
China already has been paid. Now they need to spend those dollars. I like that a lot.
China is heading to supply side econ as we head to demand side econ. Flipping the balance of payments for the next 160 years.
We are going into demand side econ for a 70 year period like Japan and Germany did after WW II.
The current trade deal for the Pacific countries is to combat very fast and powerful US economic growth. Making trading partnerships for a marginal improvement.
You can think in terms of the US having a supply side policy agenda and just screw up everything we can accomplish.
BTW the pointing at China’s US treasury holdings mostly accrued during the supply side policy period goes to something else. Supply side always goes in tandem with prejudices.
The percentage of treasuries China has is in the 8% ballpark.
Chinese restaurants use MSG. The only reason MSG is bad for you is to slow down Chinese restaurants from selling in the US. Because the competition costs American food producers. There are plenty of foods many of us east daily or weekly made to American specs where the food producers have added a ton of MSG. But MSG only counts with Chinese food? Stirring up prejudice is a supply side thing to do. The press is just lazy copying stories one reporter to the next.
Think Potato chips for one. They are very heavy in MSG.
I agree, but I don’t think there is much relevance between this and how they use their excess dollars. I think they will decline because of:
The lack of individual freedom. Their “ascendancy” happened as freedom increased, but now with freedom declining, so too will their economy eventually decline.
They have a huge demographic problem. And it’s the kind of problem that can’t be remedied no matter what they do.