It's official. China is now #2. Its economy (measured in nominal GDP for the second quarter) is now bigger than Japan's (according to numbers released today from the Japanese government). And at the rate it's growing, China could be the world's biggest economy in a little more than a decade (Goldman Sachs says by 2027, PricewaterhouseCoopers says by 2020).
Don't be misled by these numbers. The important thing isn't China's ranking, nor the total value of China's production, nor even the extraordinary speed by which China has reached #2.
What's most important is the share China's production received and consumed by the Chinese themselves. The problem is it continues to drop.
China has dozens of billionaires but the vast majority of the Chinese are still extremely poor. The typical Chinese lives off the equivalent of about $3,600 a year. That puts him behind workers in 126 other countries. (The typical Japanese earns the equivalent of about $39,000; the typical American, $46,400.)
Yes, Chinese employers are starting to respond to new-found demands of Chinese workers for higher wages. But Chinese wages are so meager relative to China's productive capacity that it would take a tsunami of labor agitation to push pay up to where it should be.
China is now the world's largest market for everything from cars to cell phones - but that's not because these items are within easy reach of the average Chinese. It's because, out of 1.3 billion people, a couple of hundred million can save enough to buy them.
If the wages and purchasing power of Chinese households continues to rise more slowly than China's capacity to produce goods and services -- more slowly than China's corporate profits and the government's share of national income -- we're all in trouble.
Think of China as a giant production machine that's growing 10 percent a year (this year, somewhat less). The machine sucks in more and more raw materials and components from rest of world -- it's now the world's #1 buyer of iron ore and copper, and close to the #1 importer of crude oil -- and spews out a growing mountain of stuff, along with huge environmental problems.
But because the Chinese consume a smaller and smaller proportion of this stuff, it has to be exported to consumers elsewhere (Europe, North America, Japan) to keep the Chinese working. Much of the money China earns by selling it around the world is reinvested in factories, roads, trains, and power plants that enlarge China's capacity to produce far more. Another big portion is lent to or invested in the rest of the world (helping to finance America's budget deficit at very low cost).
But this can't go on. China's workers won't allow it. Workers in other nations who are losing their jobs won't allow it, either.
The answer is not simply more labor agitation in China or an upward revaluation of China's currency relative to the dollar. The problem is bigger. All over the world, we're witnessing a growing gap between production and consumption, while the environment continues to degrade. The Chinese machine is fast heading for a breakdown only because it's growing fastest.
This post originally appeared at RobertReich.org.
Chinese people in urban areas get along well with fast increasing wages, available modern appliances and lifestyles, the corresponding consumption. Chinese in urban areas or cities imitate lifestyles of people in Taiwan, South Korea, Japan, or New York. While urbanization has been growing fast in China, it is the vast size of Chinese rural areas and their consumers’ extreme poverty, starvation that drag down the overall consumption level of Chinese consumers.
It will change over time depending on the speed of China’s urbanization/industrialization process.
China, in general, is extremely underdeveloped and have to undergo hell of industrialization process couttry-wide for Chinese’s individual average level of consumption to reach the level of other industrializing and industrialized countries. Although China now reached the #2 world economy status after the US, in terms of the level of economic growth or maturity, still the country is in the stage of early teenage level, I would say, which means unimaginable potential for further growth over prolonged period until next super power rises.
In terms of China’s production growth, it will also depend on the world market condition. During recession like this, world demand for Chinese goods either slows down or stagnates, which limit Chinese expansion of production.
If you follow events surrounding the chinese company, FoxConn, the following article will be of interest (see link and excerpt below): http://www.bloomberg.com/news/2010-08-18/foxconn-to-increase-workforce-40-move-factories-after-spate-of-suicides.html
"Foxconn Technology Group plans to hire as many as 400,000 workers in China in the coming year and will build factories closer to employees’ homes after a spate of suicides at the maker of Apple Inc. iPhones and Dell Inc. computers.
The Taiwanese company aims to boost its China workforce to 1.2 million to 1.3 million people after revenue jumped 50 percent in the first half, Louis Woo, special assistant to the chief executive officer, said in an interview today."
The real threat is not a threat: Chinese workers appear to be just as disposable as American workers...Watch for the blame game to heat up as corporations are the same everywhere - it's profit, profit, profit.
http://www.ft.com/cms/s/2/0f6d8f76-aa29-11df-9367-00144feabdc0.html
Any comments?
As for call centers, they're limited to English speaking options as to where to move them. I hope you're not interpretting this as any kind of long term commitment to US workers.
Corporations never make any credible commitments to workers.
2. If China would take care of its errant little nut in the attic (North Korea)
Have you ever considered why only the US is paranoid about NK. Most SKs aren't (paranoid ) and do still want reunification. The fly in the ointment is Israel doesn't give a damn. So professed White House belligerence against NK won't fly. Kim jr knows it. China too.
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Several observations:
1. I have no idea what connection you are making between Israel and North Korea, but I am always interested in an opinion. Please feel free to elaborate.
2. South Koreans are not at all anxious for re-unification. In theory it sounds nice, but the integration would be horrendously costly. They hope to put that all off to some date in the far future.
3. I am not sure why you think the US is the only paranoid state (your characterization) in the region. The Japanese, having seen a few missiles launched over them are less than sanguine about the topic.
4. North Korea is a geo-political wild card in the entire region. China has calculated that North Korea can muddle through without any major damage. North Korea is securely within China's sphere of influence. China has this ball. Let's all hope they do not fumble it.
Those pesky FACTS get in the way of a good rant every time !
(Keep up the good work, sporty1)
On the other hand, he was intensely interested in using the Federal government to better the business conditions in the US, which he considered necessary for the nation to grow and people to prosper. Far from being a populist, he still related to the needs of normal people coming into the US, and knew they needed a way to make a living and prosper. He considered that under the right conditions even less well off people could band together in order to produce goods and sales, and thus prosper and expand.
Timothy, on the other hand, considers that if the most wealthy in the country are not "disturbed" or get too excited, then they might "feel" like investing in their own well-being. (That is, if well being includes not driving through streets with no lights, no police, no schools and teachers, etc.) And he's got a point, because all of these people could just fly away, right? I mean, go to Canada or something?
Hamilton, for all of his royal attributes, promoted a balanced level of protectionism in the US, in order to develop industry. Geithner proposes...basically nothing.
The Chinese seem to know US history.
Even Jefferson did not follow his own rhetoric and did the very Hamiltonian LA purchase, the enduring legacy of his Presidency. If you read Jefferson, toward the end of his life, he says he was wrong, and has nothing but praise for the Hamilton system. I agree, Hamilton was no populist, but he is my favorite founder and you better believe the Chinese have studied and implemented a lot his policies, with the same profitable and expansive results.
A great and recent book about Hamilton, if you are interested.
Alexander Hamilton by Ron Chernow
http://www.amazon.com/Alexander-Hamilton-Ron-Chernow/dp/0143034758/ref=sr_1_1?s=books&ie=UTF8&qid=1282161001&sr=1-1
http://journals.cambridge.org/action/displayAbstract?aid=7502656
The "equivalent" salaries of $3600, $39,000 and $46000 seem half-baked at best. I know that in my world, the US, I make in the mid- $70's and I am scraping by and in debt. How does one live on $3600/year? Is this hand-to-mouth? The picture our corporate media feeds us about China is one of a grey, unquestioning mass of humanity, walking in lock step and grinding out junk for the world to buy. Is this $3600 heavily subsidized? Do they have national healthcare?
Their leadership we are told cannily plays the dupes that are our corporate elite, loaning them money to invest, yet holding a tight leash while our government slavishly begs for more cash. Someday, as the story goes, we will have pay the piper.
Is this the truth or more spin to confuse Americans about who is benefitting from the transaction?
"Live" on $2,880 a year, and save $720 p.a.
There used to be free schools and healthcare, but now they have to be paid for.
The good news is that you have to make a whole lot more before you pay a dime in taxes.