AEIdeas

The public policy blog of the American Enterprise Institute

Subscribe to the blog

Discussion: (44 comments)

  1. Citizen B.

    China’s Manufacturing Purchasing Manager Index is then very important. The overall index is above 50, which is their “cut-off point” for economic performance, but raw material inventory and employed persons still lag.

    If China is #1 in manufacturing, is it no longer a developing but rather a developed, industrialised nation?

    1. PeakTrader

      Citizen B., I stated before: GDP = Consumption + Investment + Government + Net Exports.

      If you take away China’s investments and net exports, you have consumption and government, and we know consumption is low and malinvestment is high.

      China’s GDP is an illusion. The private sector is small (consumption fell from 45% to 36% of GDP in the past decade). Basically, China is a giant assembly plant.

      What the Chinese do best is corruption, crony capitalism, misallocate resources, cause negative externalities, prevent creativity, create inefficiency, and export much of its GDP.

      1. Citizen B.

        So, Mr. Trader, is China an industrialised nation or not?

        1. PeakTrader

          Citizen B., there are still about 1 billion peasants, who make almost nothing.

          And with its one-child policy, there will be a huge demographic imbalance.

          Its standard of living will peak somewhere between India and Japan.

          1. Citizen B.

            Trader, I basically with you, but is it not ironic that it is the world’s largest manufacturer and probably not an “industrialised nation”?

          2. Citizen B.

            correction add: “I basically” agree…

        2. It’s and “industrial park”

      2. Steven Hales

        I don’t normally agree with you Peak but here you are spot on.

        1. PeakTrader

          Most people are completely wrong about so much economics.

        2. Same here, don’t always agree with Peak, but he hit the nail on the head with this comment.

          I’m not sure you want to be the biggest manufacturer in the world when the world is moving away from manufacturing, because there’s just not much value there. According to this chart, manufacturing makes up 40% of China’s economy, as opposed to the worldwide average of 18%, almost double. Obviously China is an export nation so it’s going to be much higher, but that is dangerously high. The Chinese govt thinks they are giving lots of low-wage jobs to the workers, but what happens when robotics comes along and obsoletes most of these factories? They will all be out of work again and mad at the Communist govt.

          The govt bureaucrats think they are being smart by getting a ton of manufacturing jobs and maybe it seems to be working in the short-term, but in the medium-term it will fail catastrophically and lead to upheaval. China needs to get into information services, because that is where all the value is, and to some extent they are, with baidu, tencent, alibaba, etc., but not quiet enough. All those firms compete only locally, not globally, a sign they couldn’t compete with international competition. I think they can make the transition, but it’s worrying that they’re not really trying yet, just like India.

          1. morganovich

            china’s economy seems like some sort of weird cargo cult experiment.

            someone showed the central planners the gdp equation and they mistook that equation for social well being and set out to maximize it.

            they do this by exporting massively and overinvesting horribly. they build 12 steel mills when there is demand for 6 and mistake it for prosperity, not malinvestment and profitless production.

            per capita consumption remains mired at very low levels.

            the whole thing seems like a house built by someone who saw the plans for one but never really grasped the idea that it was supposed to be for people to live in.

            peak-

            between india and japan?

            china is already between japan and india in per capita PPP gdp.

            japan is 37th in the world. india is 165th. that seems like an awfully wide spread to mean much. india is $3700 and japan is $34,700, higher than the eu average.

            it is certainly a safe bet to say that china will wind up somewhere betweent he dirt poor third world and the rich european union, but that range covers about a 9X spread in wealth.

            china is currently about $8400 per cap gdp at ppp (according to CIA)

            i have real doubts that most chinese live that well though. i suspect that the large number of state sponsored enterprises etc skews the number and that the median income figure winds up much lower.

          2. Che is dead

            “China needs to get into information services, because that is where all the value is … I think they can make the transition” — Sprewell

            In order for China to “make the transition” they would have to establish and enforce a regime of intellectual property rights, a major task for a people who pride themselves on their cunning ability to steal intellectual property from others.

            China is a kleptocracy, name a single product conceived, engineered, produced and marketed in China that the rest of the world wants to buy.

            They have advanced by adopting technologies developed by the West. In order for China to continue to advance they will have to push the intellectual envelope. Otherwise, they will remain what they are today, sweatshop to the rest of the world.

          3. 1VoiceOfReazon

            It is NOT “certainly a safe bet to say that china will wind up somewhere betweent the dirt poor third world and the rich european union,” given that they’re probably the oldest still-existing country on the planet (OK, that could have ended in WWII, if not for US), they’ll lie, cheat, and steal to win (just like left-wing Democrats here, and their puppet news media), they’re rapidly building their gold reserves while were printing “funny money,” they’ve lent us (well, the Democrats, actually) oodles of money so that they’d have the upper hand when the right time comes (though I’m sure that wasn’t the stated reason, it is a plausible one), and they have a 2.3M-man standing army and 1.5M-man paramilitary army, plus .8M in reserves, per Wiki (and with the trillion-dollar reduction in military spending that Obama set up, and wants, via the painful [to everyone else] “fiscal cliff,” they might even get a chance to use it). They’re working (as I recall) to help end the dollar as the world’s reserve currency (for the obvious reason that we’re ripping them off by paying them back with less valuable dollars (i.e., for fairness), and (IMHO) as a form of economic “warfare”). Actually, they might declare our “quantitative easing” an act of [economic] war. We don’t have to agree. I hope I don’t get bumped off for having guessed, and posted, their plan. If I’m wrong, that would be great. But none of the Chinese dynasties, and certainly not this communist government, got into power via popularity. And it doesn’t have to be just China (though I would expect it to lead). Just Russia and a nuclear-equipped Iran would be sufficient allies under the current US administation, IMHO.

          4. Che, you say that “In order for China to ‘make the transition’ they would have to establish and enforce a regime of intellectual property rights, a major task for a people who pride themselves on their cunning ability to steal intellectual property from others.” You mean like how the US didn’t recognize British patents or widely pirated their books in the 19th century, when we were as poor as the Chinese are today? I am happy that countries like Russia and China are not blindly copying our overly restrictive IP regime, which will need to be dismantled here to be more like them. :) You want some good Chinese products: how about those done by Xiaomi or BYD? If you count the Taiwanese, there’s plenty more good companies, Asus, HTC, Acer, etc. If you insist that every step must be done in China, even US companies don’t situate all parts of the production process here anymore, as iPhones and iPads are famously “Assembled in China.” We once “advanced by adopting technologies developed by the” East, ie Europe, ;) or if you go farther back, by appropriating ideas from the middle east, India, and China, nothing new there. The big problem in China is not IP rights, it’s their suffocating govt, but unfortunately we seem to be moving in their direction, just as they’re moving in ours, by freeing up their companies from the even more crushing govt burden they had before.

        3. poorhardworker

          The one thing that does concern me is the amount of debt China holds.

      3. Perhaps China’s GDP figures are not suitable for comparison.

        But this article doesn’t say anything about GDP. You raised the issue, not the author. The author’s point is that they now do more manufacturing then we do.

        So, how important is manufacturing? Well, along with mining, construction, and agriculture, they constitute the actual creation of wealth (as opposed to such industries as government, education, health, banking and service, which do not directly create wealth). Not to say that education and health, for example, aren’t important. But a country that did not do anything in the first list and only did things in the second would not produce any of the necessities to survive and would have nothing of value to offer other countries in trade for those necessities.

        I understand your psychological need to deny that China’s star is rising, and your need to deny that, independent of that, the US is falling. But I don’t believe that ignoring reality is going to make the situation better.

  2. Thanks for that link citizen b, timely…

    China is still building it seems…

    From the Juneau Empire newspaper dated November 27, 2012: U.S. Lumber Production Rises As Exports To China Slow
    China increases its British Columbia softwood lumber imports

    According to the UK Guardian: China to flatten 700 mountains for new metropolis in the desert

    These could be good indications of why China is surpassing the US in manufacturing…

  3. Jon Murphy

    Good for China.

  4. PeakTrader

    Here’s what James Fallows said about China:

    James Fallows studied American history and literature at Harvard, where he was the editor of the daily newspaper, the Harvard Crimson. From 1970 to 1972 Fallows studied economics at Oxford University as a Rhodes scholar.

    January/February 2008

    Through the quarter-century in which China has been opening to world trade, Chinese leaders have deliberately held down living standards for their own people and propped them up in the United States. This is the real meaning of the vast trade surplus—$1.4 trillion and counting, going up by about $1 billion per day—that the Chinese government has mostly parked in U.S. Treasury notes. In effect, every person in the (rich) United States has over the past 10 years or so borrowed about $4,000 from someone in the (poor) People’s Republic of China.

    Any economist will say that Americans have been living better than they should—which is by definition the case when a nation’s total consumption is greater than its total production, as America’s now is. Economists will also point out that, despite the glitter of China’s big cities and the rise of its billionaire class, China’s people have been living far worse than they could. That’s what it means when a nation consumes only half of what it produces, as China does.

    Neither government likes to draw attention to this arrangement, because it has been so convenient on both sides. For China, it has helped the regime guide development in the way it would like—and keep the domestic economy’s growth rate from crossing the thin line that separates “unbelievably fast” from “uncontrollably inflationary.” For America, it has meant cheaper iPods, lower interest rates, reduced mortgage payments, a lighter tax burden. The average cash income for workers in a big factory is about $160 per month. On the farm, it’s a small fraction of that. Most people in China feel they are moving up, but from a very low starting point.

    This is the bargain China has made—rather, the one its leaders have imposed on its people. They’ll keep creating new factory jobs, and thus reduce China’s own social tensions and create opportunities for its rural poor. The Chinese will live better year by year, though not as well as they could. And they’ll be protected from the risk of potentially catastrophic hyperinflation, which might undo what the nation’s decades of growth have built. In exchange, the government will hold much of the nation’s wealth in paper assets in the United States, thereby preventing a run on the dollar, shoring up relations between China and America, and sluicing enough cash back into Americans’ hands to let the spending go on.

    1. MacDaddyWatch

      “Any economist will say that Americans have been living better than they should—which is by definition the case when a nation’s total consumption is greater than its total production, as America’s now is.”

      So all of this globalization is an illusion that doesn’t exist. The data is all phony? I hope you are aware that the chart above is for manufacturing but does not include the other 70% of our economy–services (including intellectual property). And that alone discredits your entire very flimsily constructed case.

      Here’s a little Econ-101 that may not be taught by certain “Harvard” professors (nice cut and paste). China, like everyone else trading in our global economy has only 3 choices of what to do with their surplus U.S. trade dollars. They can (1) buy our goods and services (which goes well beyond just manufactured goods), they can (2) buy our financial paper or they can (3) sell our surplus trade dollars to someone else who has the very same 3–and only 3–choices.

      The dollar is a closed system and right now the Chinese are focused primarily on buying our financial paper–have you noticed the rates/yields carried by our Treasury bonds? The flop in Treasury yields started years before anyone ever heard of Ben Bernanke. China has played the dominant role.

      1. They don’t buy our paper, the FED does it to the tune of 80% of paper issued. They’ve been net sellers for two years at least.

  5. Love to see more charts but please, semi-log. Please.

  6. Um, considering the differences in prices for similar items in the USA and China, can any comparison of “production” expressed in US Dollars be meaningful?

    Isn’t the real measure of production in units or tonnage? What does 1 metric ton of steel produced in the US sell for? What does a ton made in China sell for? Or more accurately, a Cabbage Patch doll made in China wholesales at $0.50 or something and sells for $10 in the USA. Which price is more useful?

    In real terms, China must have passed the USA a decade ago or more.

    1. PeakTrader

      Vinnie, if you can compensate someone to produce that ton of steel or doll for almost nothing, you can sell it cheaply.

      Working for free when social costs are included won’t really raise living standards for the masses.

      1. PeakTrader

        That’s why China has become the world’s No. 1 manufacturer so quickly, because it sells its goods too cheaply.

        1. PeakTrader

          China not only sells its goods too cheaply, it lends its dollars too cheaply. So, the buying goes on, while Chinese are employed.

  7. MacDaddyWatch

    There are now more millionaires in Hong Kong and Shanghai individually than there is in LA.

    And if America’s inefficient and unproductive public sector continues to crowd-out the efficient and productive private sector by increasingly grabbing a bigger share of our GDP pie, than that list of Chinese cities with all those millionaires will grow by leaps and bounds.

  8. I like these comments about China vs. US. Particularly the one about the GDP. Take away gov from US’ GDP and you’ll see something you may not like. Furthermore, stop your illusions about we don’t want to manufacture. When a society stops manufacturing, it’s the beginning of the end. Just for your information, Italy, yes one of the pigs, enjoys a per capita wealth that is twice higher than America’s. But I think I’d better own a Ferrari than an iPad.

    1. PeakTrader

      More illusions. Italy had thousands of more years to accumulate wealth than the U.S.. Yet, Italians live in smaller houses, drive smaller autos, or ride bicycles, have much fewer shopping malls, etc.

      1. PeakTrader

        And the U.S. manufactures more value per worker than any other country, including through offshoring older products, e.g. to China, and shifting resources into more high-end manufacturing and emerging industries, where the U.S. not only leads the world, it leads the rest of the world combined (in both revenues and profits).

        1. PeakTrader

          The U.S. offshores older goods, e.g. to China, imports them at lower prices and higher profits, and shifts the freed-up resources into services, high-end manufacturing, Information and Biotech firms, and infant industries.

          The U.S. leads the world in all four major economic revolutions: Agricultural-Industrial-Information-Biotech.

          The only way to move from one economic revolution to the next is through efficiency, because of limited resources.

    2. Italy had thousands of more years to accumulate wealth than the U.S.

      If I’m not mistaken, a great deal of Italian wealth was blown (blown up?) when they joined the wrong team in the first half of the 20th century.

  9. The opacity of Chinese accounting suggests there’s an unknown amount of speculation “baked in” to any China vs. X comparisons

  10. Just a few comments from a Chinese point of view:
    1. Your manufacturing jobs are not going to come back in sufficient numbers, disregarding what President Obama said. Consumers and therefore corporations want products at the lowest possible level, and developed countries will always be high cost producers. Chinese are losing some manufacturing jobs to other countries such as Viet-Nam and Bangladesh – there will always to workers somewhere to be exploited.
    2. Our government has been a sucker for years. We are exporting material goods for world’s consumers, while collecting IOU of US$ which can be printed almost at will by US Central Bank, plus we are importing all the ills of manufacturing: pollutions and all the forth coming diseases related to them. But we do gain a lot of technology transfers which are going to improve our productivity in all fields. To think that we only do low level and low quality manufacturing is a misconception. We are registering more patents than US for the first time. Give us a few years, we will move ahead of your claim to innovation leadership.
    3. Central planning has its faults because we can make huge mistakes (such as your comments on mis-allocation of resources etc), but so-called democratic system leads to inaction and gridlock. By the way, you don’t actually have democracy except the fact that people get to vote. Money controls most of your decision making processes.
    4. The west often talks about the discontent of Chinese lower classes – the migrants and peasants. I do see a generation of very optimistic, proud, educated and outward looking young people who will eventually take control of the apparatus of the country.
    5. I do worry about the seemingly inevitable clash between US and China for the supremacy of influence. I am especially worried because many Chinese are becoming very cocky watching the decline of US and all the EU countries. We are too cocky to being dangerous so.

  11. Roger Charlesworth

    BTW. I am in China. Been here 5 years. The one-child policy DOES NOT EXIST except for Government officials, who STILL manage a couple and have the second one allocated to a relative. The majority of women around are carrying one on their back and one led by the hand, and often one in the oven too.

  12. PeakTrader

    Lorenzo, India is graduating more engineers than the U.S.. Yet, most of them aren’t any good. It’s hard to imagine China will lead the world in innovation, given the U.S. and China’s track records. The U.S. has more successful (measured in both revenues and profits) Information Age and Biotech Revolution firms than the rest of the world combined.

    Also, the U.S. has many allies, throughout the world.

    Yes, the Chinese are optimistic and hard working. Unfortunately, for China, either the best or the wealthiest Chinese, or both, will likely flee the country in a political upheaval by the masses.

  13. How much is to there that the USA bought Drones FROM CHINA AVIATION AND THEY ARE IN TRANSPORT TO THREE PORTS CALIF.,TX., AND NEW YORK.
    THANKS

  14. 1. I like how this chart illustrates that China’s manufacturing growth really hasn’t derailed or harmed US manufacturing growth…that line has roughly the same persistent slope. China didn’t take any of our pie…they made a lot more pie for all of us to eat.

    2. I’d sure like to see this as a per capital chart…manufacturing output per person. China would be no-where close by that measure.

    1. per capita…not capital

  15. LARRY PORTER

    Check out what is really going to become of the U.S. “After America: Rebuilding” is available on Amazon Kindle. It even has a new Constitution. Pretty neat read.

  16. My sister-in-law is Han Chinese and told me 35 years ago China would dominate the world economy but back then I merely laughed. Of course they are the world’s largest manufacturer-we made them! Kissinger opened them up for the Rockefellers and Chase Bank under Nixon. All our corporations have gone there and GE has three huge research campuses there while GM considers them their crown jewel. They have trillions in surplus cash while we have trillions of debt. In accounting money is made from the sale of tradable goods-manufactured goods! Only a few ways to make real money, drill it out, mine it, make tradable products, or steal it via “wars” etc. America hasn’t made a profit since the 70’s we’ve just been running up the credit card and the fractional oil bankers who really run things are demanding repayment. Oh and John J. McCloy ran things for most of the 20th century for the Rockefellers-google him. Kissinger was their boy just like all the others because as Nelson Rockefeller said: the secret to us the Rockefellers is to own nothing but control EVERYTHING-including China.

  17. I am surprised that an economist would post production figures in ‘current dollars’. The standard comparison is with ‘constant dollars’, which means adjusted for inflation. Go to the same UN database and look up 2011 output at constant 2005 dollars, and see that China still lags US manufacturing output (1.8 trillion to 2.3 trillion). The gap is closing so there is no illusion that China is rising. But US output is still rising and it is not yet time to call the switch in rank.
    http://unstats.un.org/unsd/snaama/dnlList.asp

  18. China’s population is four-times bigger than the USA’s – therefore, on a per capita basis, the US still manufactures 4x greater.

  19. For a fuller treatment with per capita rank and rates of change, see my new book INDUSTRIAL SHIFT (published my Palgrave-Macmillan) http://www.amazon.com/Industrial-Shift-Structure-Economy-Palgrave/dp/1137342269

Comments are closed.

Sort By:

Refine Content:

Scholar

Additional Keywords:

Refine Results

or to save searches.

Open
Refine Content