2025: Who will overtake US Economy First?

Martian

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Let me try a different approach. Vladimir, your central point is that a big chunk of China's economy will "vaporize" and disappear. Let's test your hypothesis. During the past year, the world economy has undergone a severe financial crisis. Logically, according to you, China's economy was under pressure and part of it should have vaporized. And yet, it is the Russian economy that has vaporized. Would you concede that the Russian economy is built on shakier grounds than China's economy?

In 2008, China's GDP was $4.3 trillion dollars; Russia's GDP was $1.7 trillion dollars. See List of countries by GDP (nominal) - Wikipedia, the free encyclopedia

For 2009, China's projected GDP is $4.75 trillion dollars; Russia's projected GDP is $1.25 trillion dollars. See List of countries by future GDP (nominal) estimates - Wikipedia, the free encyclopedia

During 2009, China's GDP has grown by approximately 10% ($4.3t --> $4.75t).
However, Russia's GDP has shrunk by 26% ($1.7t --> $1.25t).

Do you think that you should change your theory from "China collapse" to "Russia collapse?"
 

Vladimir79

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China's artificial chunk of the economy did not vaporise because they infused it with a trillion dollar subsidy. Russia's vaporised because there is no way to subsidise oil prices. Understand?
 

Martian

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China is not alone in her stimulus program. The US has a big stimulus program. Many European nations also have large stimulus programs. India is also part of the stimulus club. Are you saying that all of these nations will experience a significant vaporization of their economies?

As the world's factory, China is still very profitable.

"Trade between China and the EU in the first seven months fell 20.7 percent year-on-year to US$192.7 billion. China's trade surplus with the EU dropped 36 percent to US$55.7 billion, according to customs data." See http://business.globaltimes.cn/china-economy/2009-09/463059.html

During the first eight months of 2009, China's trade surplus with the United States is $143.7 billion. See http://www.census.gov/foreign-trade/balance/c5700.html#2009

"China's trade surplus this year is likely to drop by 23.3 percent to $220 billion, the State Information Center, an influential government think tank, said in a report. That's because China's exports are expected to fall 17.5 percent this year, and its imports to decline by a more modest 16 percent rate, according to the report." See http://www.joc.com/node/412777

China is the world's largest exporter. China's trade surplus for 2009 is approximately $220 billion dollars. That looks like a healthy economy to me.

For many years and the foreseeable future, China has the world's largest trade surplus. See http://en.wikipedia.org/wiki/List_of_countries_by_current_account_balance I can make a strong argument that China has the world's most robust economy.

Are you confident that China's economy will vaporize?
 

badguy2000

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any anticapation of the case in 5+ years is just nonsense.

I think in 5 years, CHinese GDP could be doubled to 8 trillion USD,if appreication of RMB is considered
 

p2prada

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Let me try a different approach. Vladimir, your central point is that a big chunk of China's economy will "vaporize" and disappear. Let's test your hypothesis. During the past year, the world economy has undergone a severe financial crisis. Logically, according to you, China's economy was under pressure and part of it should have vaporized. And yet, it is the Russian economy that has vaporized. Would you concede that the Russian economy is built on shakier grounds than China's economy?

In 2008, China's GDP was $4.3 trillion dollars; Russia's GDP was $1.7 trillion dollars. See List of countries by GDP (nominal) - Wikipedia, the free encyclopedia

For 2009, China's projected GDP is $4.75 trillion dollars; Russia's projected GDP is $1.25 trillion dollars. See List of countries by future GDP (nominal) estimates - Wikipedia, the free encyclopedia

During 2009, China's GDP has grown by approximately 10% ($4.3t --> $4.75t).
However, Russia's GDP has shrunk by 26% ($1.7t --> $1.25t).

Do you think that you should change your theory from "China collapse" to "Russia collapse?"
Estimating an economy completely different from the US or EU in US Dollars is not possible with just nominal GDP. For you(being an American) a Dollar has a different value compared to my value of a Dollar. For me a Dollar is much more than just one Dollar.

Both India and China have different models of growth. Ups and downs in world trade does not affect India, while it affects China. At the same time in the domestic markets in India, the dollar has no value. Only Rupees. You cannot use Dollars in supermarkets in India. That means any outside changes in the Dollar does not affect my quality of life. If you really want to compare economies you will need to compare the PPP values(but not when it comes to trade).

The current Indian GDP in Rupees is approx 45trillion. Any depreciation in the dollar will mean the value of the Rupee is greater. But, that makes no difference to the common man in India.

In the 2008-09 period the Chinese economy grew by 25% in nominal terms. That means the Chinese economy came upto $4.2trillion. But, the quality of life for an average Chinese did not improve at the same rate. That's because the nominal rate of growth is simply a mathematical figure reached by international bodies to compare the value of their respective currencies with each other. In 2008-09 period the actual Chinese growth was not 25% but 6%. And this was the actual rise in their GDP at that period.

So, the only way to compare the economies of US with China or US with India is by comparing the actual worth of the currency in their respective markets and not the US market alone. This figure is reached by Purchasing Power Parity.
 

Martian

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p2prada, if we use PPP to calculate China's 2008 economy, it would jump from $4.3 trillion (nominal) to $7.9 trillion (PPP). See List of countries by GDP (PPP) - Wikipedia, the free encyclopedia This would give a big boost to Chinese GDP per capita.

However, using PPP calculations should not significantly affect China's GDP (or per capita) growth rates.

For example, if we use nominal terms, China's 2009 GDP is $4.76 trillion and the projected 2014 GDP is $8.3 trillion. Nominal growth is ($8.3t - $4.76t)/$4.76t = 74% nominal growth

Using PPP, China's 2009 GDP is $8.5 trillion and the projected 2014 GDP is $14.4 trillion. PPP growth is ($14.4t - $8.5t)/$8.5t = 69% PPP growth

Does it really matter whether you use nominal or PPP numbers? Whether it's growth of 74% or 69% in GDP in the next five years, the average Chinese will see a significant rise in their standard of living.
 

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Martian

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The issue of nominal versus PPP is complicated. Some people, like my brother, believe that you can't buy Boeing airplanes with PPP dollars. He says that you have to pay with "real" nominal dollars.

On the other hand, if we're comparing standards of living, it's true that you have to use PPP (or a simplified Big Mac index). In other words, the same Big Mac should be normalized to the same PPP for an Indian or American.

The only concern that I have with PPP is that different groups pick a different basket of goods for their index. Also, almost all publications (i.e. newspapers, magazines, trade publications, etc.) publish only nominal numbers. For convenience of calculation, I tend to use nominal numbers.

However, I concede that PPP may be a more accurate reflection of a nation's economic strength. For example, I don't believe for a second that Canada has a bigger economy than India. (Nominal: Canada = 1.3t; India = 1.2t) See http://en.wikipedia.org/wiki/List_of_countries_by_future_GDP_(nominal)_estimates

(PPP: Canada = 1.3t; India = 3.5t) See http://en.wikipedia.org/wiki/List_of_countries_by_future_GDP_(PPP)_estimates

I agree that India's 1 billion population has the world's fourth largest economy. However, due to ease of calculation, I regret that I have to use the nominal method.
 

p2prada

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p2prada, if we use PPP to calculate China's 2008 economy, it would jump from $4.3 trillion (nominal) to $7.9 trillion (PPP). See List of countries by GDP (PPP) - Wikipedia, the free encyclopedia This would give a big boost to Chinese GDP per capita.
At the same rate, India's would jump from $1Trillion to $4trillion. Our surrency is undervalued. But, nobody's complaining.

However, using PPP calculations should not significantly affect China's GDP (or per capita) growth rates.
Yes. Nominal and PPP calculations are just that, calculations. They are not the actual GDPs. The actual GDPs HAVE to be measured using their respective currencies.

For example, if we use nominal terms, China's 2009 GDP is $4.3 trillion and the projected 2014 GDP is $8.3 trillion. Nominal growth is ($8.3t - $4.3t)/$4.3t = 93% nominal growth

Using PPP, China's 2009 GDP is $8.5 trillion and the projected 2014 GDP is $14.4 trillion. PPP growth is ($14.4t - $8.5t)/$8.5t = 69% PPP growth
This figure can always change. Right now, if China strengthens the Yuan against the Dollar by 50%. Chinese GDP will jump from $4.3trillion to $8.6 Trillion in less than one year. We can keep quoting the Dollar figures of all economies. But, none of it matters in real terms. Only US economy uses Dollars.

If you use nominal numbers, the average Chinese has a lower standard of living with higher future growth rates. If you use PPP numbers, the average Chinese has a higher current standard of living with lower future growth rates.
The average Chinese will see higher growth. There is only one "growth." You don't grow twice. It's just that the PPP figure is more accurate when judging his growth compared to Nominal figures.

Using Nominal figures, a Chinese businessman in the import business will see large profits. A Chinese businessman in the export business will see huge loss. This is because the exporter is getting less Yuan to a Dollar while the importer gets more Dollars to the Yuan.

This is the principle reason why the Chinese currency and Indian currency are undervalued. Helps earn more profits in the export business.

But, the same logic does not apply to an average Chinese. He earns in Yuans and spends in Yuans.

Does it really matter whether you use nominal or PPP numbers? Whether it's growth of 93% or 69% in GDP in the next five years, the average Chinese will see a significant rise in their standard of living.
They are both mathematical formulas. The PPP is more accurate when you compare since both India and China are poor.
 

Vladimir79

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China is the world's largest exporter. China's trade surplus for 2009 is approximately $220 billion dollars. That looks like a healthy economy to me.

Are you confident that China's economy will vaporize?
220bln is a drop in the bucket compared to 4 trillion GDP. If China wants to expand that GDP then they will have to ween themselves off exports and move to a domestic economy. 2/3rds of their current domestic economy is an inneficient, subsidised, communist nightmare facing a reality check that is going to drop it back into the Dark Ages. What China don't want you to see, they won't show you. Just watch the news for more protests, strikes, and riots. There is no better indicator than the people.
 

Martian

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"At the same rate, India's would jump from $1Trillion to $4trillion. Our surrency is undervalued. But, nobody's complaining."

This is shocking to me. I never realized that India may have the world's most undervalued currency.

"220bln is a drop in the bucket compared to 4 trillion GDP."

The Chinese export businesses (that generate over a trillion dollars in trade) pay good wages to the millions of workers in the factories. The export businesses/factories have to pay property taxes. China collects money through tariffs from its massive trade. China also collects corporate income taxes and personal income taxes from the millions involved in the export businesses.

The export businesses pay rent to the landlords. The exporters create more business activity by paying truckers for shipping and laborers for warehousing. The exporters create jobs for accountants, marketers, container-shipping companies, subcontractors, etc.

The economic benefit to China is not only 220 billion dollars.

I find it strange that when Germany was the world's largest exporter, most people said that Germany had the world's strongest economy. Yet, now that China is the world's largest exporter, there is a determined group that keep saying that China's economy will fall apart at any time. History has shown that China's economy will not fall apart anytime soon. The 1997 financial crisis only temporarily slowed down China's growth.
 

p2prada

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This is shocking to me. I never realized that India may have the world's most undervalued currency.
Japanese currency is also undervalued. But, they cannot help it. They are in "tatters."

Edit: The fact is India is not a major exporter. So, most countries will not have a problem if India sells stuff and make a bigger profit than other export oriented countries while we keep our import rates higher. The more we import the more profit the exporters make. But, the moment we start exporting in a big way, we will come under pressure from other Govts to revalue our currency to prevent Trade differences. It was the same pressure from the US that made China revalue her currency from 8.25 to 6.15 Yuan to a Dollar during the recession period.

During the recession the Indian Rupees(INR) was 40 to a dollar. The govt came under a lot of pressure from our IT companies to weaken the Rupee for more profits. Meaning they earn in Dollars and spend in Rupees. A lot of companies also borrow from international banks in Dollars. Now, to weaken the Rupee, the govt started increasing rates that prevented FDI. FDI started decreasing and some investors started pulling out their money from India. This brought the Rupee to 49-50. Presently, the INR is 46 to a Dollar.

I find it strange that when Germany was the world's largest exporter, most people said that Germany had the world's strongest economy. Yet, now that China is the world's largest exporter, there is a determined group that keep saying that China's economy will fall apart at any time. History has shown that China's economy will not fall apart anytime soon. The 1997 financial crisis only temporarily slowed down China's growth.
Unfortunately, the population of Germany and China is completely opposite. Our populations are a boon and a bane. If your economy is growing and even 10% of your population in unemployed, it only means a disaster is headed your way. China needs to shift to services while India needs to take a good look at manufacturing.
 

NSG_Blackcats

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Well nice discussion going on about who takes over whom. These predication made by ADB, IMF and World Bank can go wrong. As both India and China have a bigger population they may have a bigger economy than US in next 25/30 years. But the important question is what about the per capita income and standard of living in both India and China? Can we say with confidence, after taking over US both India and China will have better standard of living compared to US? I would say no.

By the way climate change is a big issue. We are facing lots of natural disaster world over. These are supposed to increase in coming years. So who knows by 2030 there may not be a ADB, IMF or World Bank to make any future prediction.
 

Vladimir79

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"220bln is a drop in the bucket compared to 4 trillion GDP."

The Chinese export businesses (that generate over a trillion dollars in trade) pay good wages to the millions of workers in the factories. The export businesses/factories have to pay property taxes. China collects money through tariffs from its massive trade. China also collects corporate income taxes and personal income taxes from the millions involved in the export businesses.
They aren't collecting as much money as you think. The government has already lost $40 billion in the first 8 months on export tax rebates. By the end of the year it will be $60+ billion.

China's export tax rebate up 8.6% in first eight months_English_Xinhua

The export businesses pay rent to the landlords. The exporters create more business activity by paying truckers for shipping and laborers for warehousing. The exporters create jobs for accountants, marketers, container-shipping companies, subcontractors, etc.
And all those people are getting 15-20% tax rebates and China is paying subsidies to keep them in busines so they aren't collecting jack.

The economic benefit to China is not only 220 billion dollars.
Right now, it is costing them money. You can flush that trade surplus down the toilette.

I find it strange that when Germany was the world's largest exporter, most people said that Germany had the world's strongest economy. Yet, now that China is the world's largest exporter, there is a determined group that keep saying that China's economy will fall apart at any time. History has shown that China's economy will not fall apart anytime soon. The 1997 financial crisis only temporarily slowed down China's growth.
Better yet, lets use Japan as an example. Japan was said to be the world's strongest economy exporting their high end electronics and autos to Amerika. What ended up happening was they hit their asset bubble and it burst big time and Japan has had 15 years of negative (real) GDP growth since. Japan has been able to keep from total collapse thanks to the quality and high tech products they provide, but China sells substandard and low tech easily made in the third world. Not being as developed socially or institutionally is going to rip that country apart with anything less than 7% growth. If they go negative, it is the end of the CCP.
 

Martian

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China Exports to U.S.

Of the $287.8 billion in American imports from China in 2006, the following product categories had the highest values.

1. Computer accessories, peripherals and parts …US$28.9 billion (10.1% of China to U.S. exports, up 12.4% from 2005)
2. Miscellaneous household goods (e.g. clocks) … $26.5 billion (9.2%, up 17.2%)
3. Toys & sporting goods (e.g. bicycles) … $22.2 billion (7.7%, up 10.2%)
4. Computers … $17.4 billion (6%, up 20.2%)
5. Non-cotton household furnishings & clothing … $14.6 billion (5.1%, up 11.3%)
6. Video equipment (e.g. DVD players) … $14.5 billion (5.0%, up 34.9%)
7. Household furniture … $13.2 billion (4.6%, up 14.3%)
8. Footwear ... $10.7 billion (3.7%, up 11.1%)
9. Cotton household furnishings & clothing … $9.9 billion (3.4%, up 29.6%)
10. Telecommunications equipment … $8.3 billion (3.0%, up 23.7%)

Read more: Top Chinese Exports & Imports: Most Popular Products Traded Between China & America | Suite101.com

"China sells substandard and low tech easily made in the third world."

Do you really believe that "computer accessories, peripherals and parts," "computers," "video equipment," and "telecommunications equipment" are "low tech [and] easily made in the third world?"

Do you think Russia can easily make computers and telecommunication equipment? Does Russia have a global brand comparable to Lenovo (computer) or Huawei (telecommunications)?

"China's largest refiner Sinopec, together with 34 other Chinese companies, made it to this year's Fortune 500 list released Thursday, the best-ever showing" See http://www.chinadaily.com.cn/china/2008-07/11/content_6836794.htm

While China has 35 diversified companies among the global Fortune 500 and Russia only has 8 (i.e. 6 oil companies, a bank, and a metal producer), does it make sense to keep claiming that China produces "low tech...third world" products and that Russia is a high-tech oil exporter (see http://en.rian.ru/business/20090709/155478458.html)? Do you think Saudi Arabia is also a high-tech oil exporter?

Does it seem fair to you to paint China as a country ready to fall apart at the seams that sells low-tech third-world products when, in reality, China's top 500 companies are the world's most profitable?

"CHINA'S top 500 companies outperformed their US counterparts for the first time last year, a survey conducted by a business group has revealed, as the financial crisis wreaked havoc in the US.

Net profits at the nation's highest-performing firms totalled $US171 billion ($200.85 billion) in 2008, compared to $US99 billion ($116.28 billion) for the US firms, according to the survey by the China Enterprise Confederation (CEC)." See http://www.dailytelegraph.com.au/bu...s-beat-us-rivals/story-e6frez80-1225770304569

Do you believe that Americans won't laugh when you say that they shouldn't be afraid of Chinese industry, because it's really Russian industry that they should be worried about?

Do you think world-leader Cisco is afraid of Huawei or a Russian company? "LAWSUITS ASIDE, HUAWEI PRICES POSE NEW THREAT TO CISCO" (See http://telephonyonline.com/finance/print/telecom_lawsuits_aside_huawei/) Does Russia even have a telecommunications equipment maker?
 

no smoking

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Japanese currency is also undervalued. But, they cannot help it. They are in "tatters."

Edit: The fact is India is not a major exporter. So, most countries will not have a problem if India sells stuff and make a bigger profit than other export oriented countries while we keep our import rates higher. The more we import the more profit the exporters make. But, the moment we start exporting in a big way, we will come under pressure from other Govts to revalue our currency to prevent Trade differences. It was the same pressure from the US that made China revalue her currency from 8.25 to 6.15 Yuan to a Dollar during the recession period.

During the recession the Indian Rupees(INR) was 40 to a dollar. The govt came under a lot of pressure from our IT companies to weaken the Rupee for more profits. Meaning they earn in Dollars and spend in Rupees. A lot of companies also borrow from international banks in Dollars. Now, to weaken the Rupee, the govt started increasing rates that prevented FDI. FDI started decreasing and some investors started pulling out their money from India. This brought the Rupee to 49-50. Presently, the INR is 46 to a Dollar.
Yes, when india starts its leap on manufacturing, the currency value will come after it. Actually, this question will come after every developing country in certain stage. The problem is how fast you are revaluating your currency.

Unfortunately, the population of Germany and China is completely opposite. Our populations are a boon and a bane. If your economy is growing and even 10% of your population in unemployed, it only means a disaster is headed your way. China needs to shift to services while India needs to take a good look at manufacturing.
No, currently, china should move upwards through the manufacturing chain: from low-tech product focus to high-tech product focus. I expect this will take more than 2 decades for china.
 

Vladimir79

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China Exports to U.S.

Of the $287.8 billion in American imports from China in 2006, the following product categories had the highest values.

1. Computer accessories, peripherals and parts …US$28.9 billion (10.1% of China to U.S. exports, up 12.4% from 2005)
2. Miscellaneous household goods (e.g. clocks) … $26.5 billion (9.2%, up 17.2%)
3. Toys & sporting goods (e.g. bicycles) … $22.2 billion (7.7%, up 10.2%)
4. Computers … $17.4 billion (6%, up 20.2%)
5. Non-cotton household furnishings & clothing … $14.6 billion (5.1%, up 11.3%)
6. Video equipment (e.g. DVD players) … $14.5 billion (5.0%, up 34.9%)
7. Household furniture … $13.2 billion (4.6%, up 14.3%)
8. Footwear ... $10.7 billion (3.7%, up 11.1%)
9. Cotton household furnishings & clothing … $9.9 billion (3.4%, up 29.6%)
10. Telecommunications equipment … $8.3 billion (3.0%, up 23.7%)

Read more: Top Chinese Exports & Imports: Most Popular Products Traded Between China & America | Suite101.com
Proves Chinese exports are dominated by low tech items.

"China sells substandard and low tech easily made in the third world."

Do you really believe that "computer accessories, peripherals and parts," "computers," "video equipment," and "telecommunications equipment" are "low tech [and] easily made in the third world?"
Chinese "computers" are driven by Western processors like Intel and AMD. Making a VCR and DVD player is childs play. As far as telecom and electronics, look at the lengths China has to go to sell it their low tech items...

BEIJING, Jun 08, 2009 (SinoCast Daily Business Beat via COMTEX) -- Chinese regulators are brewing a plan about entire tax drawback for exports of all machinery and electronic products, including communications products, citing a report. CHINA'S TELECOM EXPORTERS MAY ENJOY ZERO EXPORT DUTY | Article from AsiaInfo Services | HighBeam Research

Do you think Russia can easily make computers and telecommunication equipment? Does Russia have a global brand comparable to Lenovo (computer) or Huawei (telecommunications)?
Does Lenovo make computers? The CPU, motherboard, and graphics cards are Amerikan. Huawei is a sympton of the nation's problem... cooked books, intellectual property theft and heavy government subsidy.

"China's largest refiner Sinopec, together with 34 other Chinese companies, made it to this year's Fortune 500 list released Thursday, the best-ever showing" See 35 Chinese firms make Fortune 500 list this year
Do you know how heavily subsidised most of those companies are? Once you take away government aid their profits would be negative in most cases.

While China has 35 diversified companies among the global Fortune 500 and Russia only has 8 (i.e. 6 oil companies, a bank, and a metal producer), does it make sense to keep claiming that China produces "low tech...third world" products and that Russia is a high-tech oil exporter (see Business | Top Russian news and analysis online | 'RIA Novosti' newswire Do you think Saudi Arabia is also a high-tech oil exporter?
What do Russian companies have to do with China?

Does it seem fair to you to paint China as a country ready to fall apart at the seams that sells low-tech third-world products when, in reality, China's top 500 companies are the world's most profitable?
They are not profitable... they are SUBSIDISED.

"CHINA'S top 500 companies outperformed their US counterparts for the first time last year, a survey conducted by a business group has revealed, as the financial crisis wreaked havoc in the US.
Because they are SUBSIDISED.

Net profits at the nation's highest-performing firms totalled $US171 billion ($200.85 billion) in 2008, compared to $US99 billion ($116.28 billion) for the US firms, according to the survey by the China Enterprise Confederation (CEC)." See China's top 500 companies beat US rivals | The Daily Telegraph
Subsidy and more subsidy.

Do you believe that Americans won't laugh when you say that they shouldn't be afraid of Chinese industry, because it's really Russian industry that they should be worried about?
If Amerikans understand the meaning of the words "subsidy" and "cooked books" they will know exactly why Chinese appear to outperform them. In gross output they do, but when it comes to profit margins, China is alot lower than they appear.
 

Vladimir79

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BTW, I don't appreciate you trying to bait me into a nationalist flame war with China. I am aware of Russia's position.
 

Flint

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johnee, do you really believe that the Asian Development Bank (ADB), IMF, and World Bank are all lying about China's growth and that China is really "cooking the books?"
China's growth story is quite real. This is very hard to swallow for those who are ideologically against China, but the facts cannot be contested. Infact, China's informal/underground economy is quite large as well, which would push up the official figure significantly if included.

Personally, I don't buy this speculation that China's economy is going to fall apart any time soon. China has a government that is committed to both economic growth and stability, and is willing to push boundaries and create innovative policies to achieve its targets.

Of course, there are a huge number of weaknesses and potential pifalls ahead, and China is nowhere near Japan, Korea or the US in terms of maturity and technological capability, but it is moving quickly in that direction, faster infact than any other country.

Politically too, there are many challenges, especially since Chinese people are already demanding greater freedoms and expectations from the government rise every day as more and more Chinese become aware of their human rights. How these are tackled in the future is pure speculation.
 

Vladimir79

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More evidence China's Recovery is fake just off the wire...

China's Weak Steel-Demand Forecast Raises Eyebrows

By CHUIN-WEI YAP

BEIJING -- An unexpectedly low projection for China's steel demand next year, a crucial factor in iron ore price talks, surprised even ArcelorMittal Chief Executive Lakshmi Mittal, the World Steel Association's outgoing chairman.

China's massive measures to stimulate its economy have revived the appetite for steel in the country, which in turn prompted the global steel association to project a smaller decline in global steel demand this year than it had estimated in April. It said Monday that it now sees an 8.6% drop compared with its April outlook for a 14.1% decline.

But as the measures have increased Chinese demand for steel, the picture for 2010 has weakened substantially amid concerns about industry overcapacity.

China's steel demand will likely grow 19% in 2009, but growth could drop to 5% next year as support from stimulus measures wanes, the global steel group said, based on a forecast by the China Iron and Steel Association, or CISA, the country's steel industry authority.

Mr. Mittal said that China's low forecast for 2010 comes as a "surprise" given the economic growth for the world's third largest economy is projected at around 8% to 9% in 2010.

Steel demand in China -- the world's largest steel producer and consumer -- plays a critical role both for industry forecasts and iron ore price negotiations. Steel-price negotiations earlier this year, which collapsed into chaos amid spying charges and arrests, were preceded by China's conservative estimates for steel demand.

"As before the financial crisis, the emerging economies, especially China, will be the critical factor in driving world steel demand in the near future," said Daniel Novegil, chairman of the World Steel Association's economics committee.

Mr. Novegil cautioned that there remain uncertainties and concerns regarding the resilience of the global recovery. "This uncertainty particularly exists for the Chinese economy in 2010, whose fast recovery in 2009 was largely enabled by such strong government stimulus policies," he said.

Mr. Mittal said CISA's projections have tended to play down growth prospects by a large margin. "At the beginning of this year, [CISA] was saying steel demand would decline 5%. Now we are seeing it growing 19% this year," he said.

Wu Xichun, honorary chairman of CISA, said China's 2010 forecast was based on concerns about overcapacity in China's steel sector, steel exports weakening, high stock levels and the stimulus from Beijing waning.

In contrast, the global association projected that India's steel demand will likely rise 12% next year; Australia's demand will grow 34%, and Japan's will grow 16%.

China's Weak Steel-Demand Forecast Raises Eyebrows - WSJ.com
 

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