China's Emergence As A Global Superpower

[Billy T]

China has a long history of agressively claiming territory.... And as of this writing I don't think any nation other than China recognizes any of its many disputed territorial claims.

No more so in the CLAIMS than four others, but China now has the blue water sea power to enforce it claims against all five; However it is still focused on diplomacy. Teddy Roosevelt would be proud of China: "Speak softly but carry a big stick." More important than "country recognition" or even ASEAN recognition is oil company recognition - note the part I made bold below.

I am sure part of the reason Chinese warship are helping contain the Gulf of Aden pirates is to drive this point home to the five others claiming Spratly Islands. Before oil companies became interested in about 1970, no one was concerned much about these "islands" in the South China Sea, many of which are under water at high tide. (Probably almost all will be in a decade or so as the oceans warm.)

Here is part of a very recent (9 Feb09) analysis:

"... China has been very active in enforcing its claims via non-military means. Specifically, China periodically employed deadly force against civilian fishermen from neighboring countries when they travelled through the disputed waters. China also pressured international oil companies such as BP and Exxon Mobil to back out from joint-venture exploration projects with Vietnam. In addition, China has been building numerous permanent structures on disputed atolls and rocks for “scientific and humanitarian” purposes. Underwriting all these measures is a sophisticated strategy China plays to divide the South East Asian claimants through economic and diplomatic means in addition to a worldwide propaganda campaign to publicise China’s “unequivocal stance”.

China’s recent successes in the South China Sea are tangible. In late 2007, China announced a formation of a new “city” in the dispute area. This is in spite of the fact that the area referred to barely has a population to speak of and consists mostly of water and desolate islands. In a second incident on Nov 24, 2008, China announced the country would invest more than $29 billion into oil exploration projects around the disputed waters. Both these announcements met with surprisingly little opposition from the other claimants. International media largely neglected the first one. The second one made headline news around the globe, except that most reports forgot to mention the territorial dispute in the South China Sea.

As in a typical bargaining game, China’s coercive yet understated diplomatic posturing and success is understandable. What is harder to comprehend is the lack of action and perceived impotence of China’s rivals. If Vietnam, Philippines, Malaysia and Brunei confront China separately, their failure is certain because they are severely disadvantaged, both economically and militarily.

If these countries could form a coalition and confront China as one, the coalition may be strong enough to withstand Chinese designs. After all, history has proved that China will concede when it faces an adversary with an equally strong suite. In a recent territorial dispute over East China Sea, China and Japan finally achieved an agreement on June 18, 2008, to agree on mutual exploration and exploitation. According to this agreement, all the joint-venture projects are located on the border between the two countries, as originally asserted by Japan, not China. In other words, the borderline previously drawn by China was of no value. Japan’s territorial assertions regarding the East China Sea were upheld.

Nonetheless, forming a coalition over the South China Sea dispute will not be easy for Vietnam, Philippines, Malaysia and Brunei. For a coalition mechanism to work, these countries must first learn to trust each other. In 2003 and 2004, for example, China easily persuaded the Philippines to sign a bilateral agreement that tossed Vietnamese concerns aside. The lack of trust will make all four countries vulnerable to Chinese manipulation.

These ASEAN countries should put aside conflicting claims over the islands, reefs and rocks in the Spratlys and work collaboratively on a fair division of the disputed area. This envisaged coalition must also be more proactive in disseminating information about their stance and the legality of their claims on the international stage. Because without worldwide support, even a durable coalition of some ASEAN members may not be strong enough to counter China over the South China Sea dispute. ..."

From:http://www.opinionasia.org/TheSouthChinaSeaDispute
Check out their "about us" home page section - they seem to be an English language publisher for well informed intellectuals of many Asian countries.

 

[quadraphonics]

PS to Quadraphonics. Thanks for the FA ref on China/India’s potential conflict at sea. I would guess that even if India cannot control the straights they can stop oil tankers from using it. I.e. China is in a no win position but India can still get oil from the Gulf region. This may be why China is so interested in developing the oil of Tompkins Gulf, from its western provences and from Russia as well as Brazil and Africa in long term contracts.

Yeah, I think it's uncontroversial that China is concerned about its dependence on energy resources shipped through the Malacca Strait, and is looking both to diversify and to exert what control they can on the Strait. For that same reason, however, I think it is unlikely that they will take any actions that are too provocative there. They will want to push against the US navy and others in the region, but not to the point of causing the US to deploy lots of forces there, let alone setting off an actual naval conflict (if they do that before they can be sure of winning, they stand to have their shipping through the Strait cut off, and so suffer a humiliating national defeat).

The interesting thing about the Indo-Chinese naval rivalry, from the US perspective, is that it puts the US in a prime position to act as balancer or arbiter. I.e., since we have no direct territorial claims in the region, we can play the sides off against one another to ensure that neither is able to attain naval hegemony in the area.

 

[Billy T]

Yeah, I think it's uncontroversial that China is concerned about its dependence on energy resources shipped through the Malacca Strait, and is looking both to diversify and to exert what control they can on the Strait. For that same reason, however, I think it is unlikely that they will take any actions that are too provocative there. They will want to push against the US navy and others in the region, but not to the point of causing the US to deploy lots of forces there, let alone setting off an actual naval conflict (if they do that before they can be sure of winning, they stand to have their shipping through the Strait cut off, and so suffer a humiliating national defeat).

The interesting thing about the Indo-Chinese naval rivalry, from the US perspective, is that it puts the US in a prime position to act as balancer or arbiter. I.e., since we have no direct territorial claims in the region, we can play the sides off against one another to ensure that neither is able to attain naval hegemony in the area.

Well at least here we are in complete agreement.

China is only thinking about building an aircraft carrier. The US seventh fleet has had one in the sea between China and Japan for at least 25 years. Except for an ICBM, there is nothing like an aircraft carrier (in its protective battle group of ships) for projecting power / control of the sea. China understands that and has wisely chosen to build and economic gun of US Treasury bonds - to make a "Mexican standoff" instead challenge the US on the high seas.

 

[Baron Max]

China is only thinking about building an aircraft carrier. The US seventh fleet has had one in the sea between China and Japan for at least 25 years. Except for an ICBM, there is nothing like an aircraft carrier (in its protective battle group of ships) for projecting power / control of the sea. China understands that and has wisely chosen to build and economic gun of US Treasury bonds - to make a "Mexican standoff" instead challenge the US on the high seas.

So what are you saying here, Billy? The China is a "war" with the USA? Economic "war"?

Baron Max

 

[Billy T]

So what are you saying here, Billy? The China is a{at} "war" with the USA? Economic "war"? Baron Max

No, not saying that. Only noting that China is using economic means to protect its self from the US's superior naval forces.

In some sense, however, all nations are in an economic war on a planet with limited critical resources, such as oil. As I have pointed out for years, when China's domestic market and foreign obligations related to all the long term contracts (for food stock, raw materials, and energy) China has signed require nearly the full productive capacity of China's factories and labor force, then it is to China's economic advantage to start a run on the dollar (if it has not already happened). That run will send the US and EU in deep and long lasting depression (worse than the decade of the "great depression") and greatly lower the demand for oil, minerals etc. (and hence the price China must pay for these supplies.)

It appears to me, from the steeping of the yield curve, that China has already stopped buying 30 year Treasury bonds, possible even the 10 year ones.

 

[Billy T]

One indication of the confidence in a country’s economy is the P/E ratio. In Dec2001 the largest 50 companies listed on the NYSX had P/E = 32.3 and Brazil’s had only P/E =9.0 Last week the US’s P/E = 12.5 and Brazil’s P/E was 10.2 This will probably slow the FDI into Brazil’s stocks as the P/E of the Brazilian market is no longer the “bargain” it once was. I do not have data on the change in China’s P/E, but it too is probably not down as much as the US’s is. Perhaps, like Brazil, it has even increased.

Another indicator of industrial economic health is the production of cars.
BTW, Brazil is in 6th place, about half million annual units below S. Korea and other 4 are obvious.
IMHO, there is at least a chance that Brazil may claim 5th place by end of 2009 as S. Korea has lots of problems now.
Here is that production data for China with Price Waterhouse projections out to 2012 in millions of units (light truck included):
2004 – 3.72
2005 – 4.41
2006 – 5.72
2007 – 6.95
2008 – 7.46
2009 – 7.58
2010 – 8.19
2011 – 9.29
2012 – 10.97

In Jan09, Chinese bought 735,500 light vehicles and in the US 656,693 were sold. This is the first month China has passed the US in auto sales. Price-Waterhouse projects they will pass US in total PRODUCTION in 2009 and be second only to Japan.

US is sinking fast, but still has a long way to go before China is the No 1 economy in the world. Quoting my own November 2005 post 143:

...As I said at the start: there are two ways to reach an affirmative answer to the thread's question. I think the US going down will be the more dominate reason to answer it "Yes."

Back in 2005, I had never heard of "sub-prime" but clearly foresaw the current mess, which is just getting started,* unless Obama is a real miracle worker.
--------------
*China still needs US buyers in Wal-Mart etc. so will not destroy the US yet by dumping its Treasury bonds. Main paragraph of post 145 tells when it will.

 

[fedr808]

Heh, China won't destroy the US by withdrawing bonds, if you think otherwise see my earlier post.


Also, the US is still by far the world's economic super power. China isn't close, Japan's even closer to the US than China.

China's GDP is 4,000,000,000,000 dollars rounded
The US is 13,000,000,000,000 dollars rounded

 

[Billy T]

Heh, China won't destroy the US by withdrawing bonds, if you think otherwise see my earlier post....

See my reply to you at:
http://www.sciforums.com/showpost.php?p=2204252&postcount=44
Also see SAM's link* about China calling for new international currency to replace the dollar, which about two weeks ago China publicly questioned the soundness of. Note also China is buying less Treasurries already and None with more than 10 years to maturity.

I tried to see your "earlier post" but did not find it -please give a link.

*http://www.pbc.gov.cn/english//detai...ol=6500&ID=178 - Note that is an official site of the CCP, not some commentator's guesses but it seems to come up in Chinese script now. I read about their suggestion in todays paper. Here is a English link two hours old (Bloomberg does not have it yet, but the international hearld tribune does now.):
http://www.iht.com/articles/2009/03/24/asia/24china.php

 

[Billy T]

"Car sales have collapsed in the rich world ... but are still growing in many developing countries: they are expected to increase by 10% this year in China ... The electric car made by BYD, a Chinese battery-maker that branched into carmaking a few years ago, was the talk of the Detroit motor show in January. ..."

From: http://www.economist.com/opinion/displaystory.cfm?story_id=13362863

Note China has already passed the USA in monthly car + light truck sales.

Perhaps the thread's question need to be changed To: Do you think India will overtake US one day?
Note India is projected to over take China in population (I think in a decade, but forget the period)

If so here is the first post:

{Ravi Kant, Tata motors boss}: "The Nano {$2,500 four door Indian car} is tapping into a social and economic revolution in India. There is a paradigm shift under way in the country. Through the explosive growth of cellphones and television, the aspirations of rural people are converging with urban people.” He also points to India’s plan to connect every village with a population of more than 1,000 to the road network by 2010. Nor are his ambitions for the Nano limited to India. The Nano Europa, a plusher version that meets Western safety and emissions standards, will go on sale in 2011, with an American version due a year or so later. The interest in the Nano, he says, “is worldwide.”

From: http://www.economist.com/business/displaystory.cfm?story_id=13381522

 

[Billy T]

"China’s leaders, increasingly concerned about {dollar's value} the nation’s $740* billion of U.S. Treasuries, are making it easier for trading partners and consumers to do business in yuan. The People’s Bank of China has agreed to provide 650 billion yuan ($95 billion) to Argentina, Belarus, Hong Kong, Indonesia, Malaysia and South Korea through so-called currency- swaps. More such arrangements are being planned so importers can avoid paying for Chinese goods with dollars, the central bank said. "

From: http://www.bloomberg.com/apps/news?pid=20601109&sid=aoASp7xRlFjs&refer=home
------------------
*This is first time I have seen such a precise value given - I wonder where that figure comes from. More typically said is approximately one trillion (or their 2 trillion in reserves is in dollars.

SUMMARY
More evidence of the dollar becoming less important for global trade.

BILLY T COMMENTS:
I admit to some INITIAL surprize that Brazil is not included. Brazil and US do have a 30 Billion dollar currency swap deal in place for about one year now, but I do not think either side has drawn on it. Perhaps reason Brazil is not with Real Yuan swap deal is brqazil is flush with dollars, and China still accepts dollars for its exports. I.e. Brazil may not want to give Real instead of dollars to China.

Ironically, the velocity of the dollar in the US domestic market is at all time low, but internationally the dollar is becoming a hot potatoe -pass it to someone else as quick as you can. With trillions of new dollars coming off the printing presses almost everyone fears the collapsing value of the dollar long term and does not want to get stuck holding too many. Short term, because the US markets are the most liquid, the story is quite different, at least for a while now, there is demand for short term US paper. This has short term interest rates on it near zero (and on a few occasions even negative!) but few are buying longer term debt, - has little demand, except by the FED. You can see this in the unusally steep yield curve. I think China has entriely stopped buying 30 year Treasury paper. I would not touch even the 10 year paper now. Inflation is very likely IMHO to make that a big loser in purchasing power (but you will still get to pay taxes on the nominal gain. Talk about pouring salt in a wound!)

 

[Jozen-Bo]

It will never ever, ever happen.


At least not by military force. America would see the entire world in flames before seeing itself overtaking by Chinese.

No one will ever take over America, because as a last resort America would destroy the entire world, itself included, if it could not use other means to prevent a take over. They would rather see everyone dead than themselves ruled over (along the lines of "give me liberty or give me death"...but more like.."give me liberty or we're all going to die!"). China will never get that stupid....America can blow up Jupiter over 100 times...

Economically, America may stumble, but that it does will only make Americans watch out and more focused on maintaining economic strength. Their guard wasn't up, now it will be.

It seems we have gone from fighting wars, to cold wars, to what appear to be economic wars. At least there isn't as much blood!!!

 

[Billy T]

... It seems we have gone from fighting wars, to cold wars, to what appear to be economic wars. At least there isn't as much blood!!!

That is correct.

As both US and China have many nuclear tipped ICBMs,* old style wars are now mutual suicide packs. The only** war that can be won is an economic war. That war is in progress and far from over. China is growing stronger as the US is growing weaker. China can declare victory if and when oil is priced in Yuan.

-----------------
*They could even explode nuclear bomb on the moon, precisely where the wanted to, if they wished to do that. After China's moon orbiting research satellite had completed it’s planned more than year long survey program, they had it do one last experiment. -I.e. crashed it into their pre-selected site to observe the effects.

Perhaps the purpose of dropping it into the crater of their choice was to drive home the point that hitting within 50 meters of the New York Stock Exchange would be easy.
I think that is also why they shot down one of their own satellites a little more than a year ago. - I.e. just showing off their technical capacity, in case anyone foolishly doubted it.

**One could argue that the US won the cold war with the USSR, but I think it more accurate to say the USSR lost that war. For example if one of the two basket ball teams fails to show for a match, the one that did show in some sense "won" but it is more accurate to say that the one failing to show lost. The USSR was never in the game economically - too handicapped by the central management of their economy. China is not making that mistake.
The CCP only makes the major investment needed in infrastructure (Such as railroads, ports, dams, etc. and builds a new power plant every 8 days with one per month*** being a nuclear plant to reduce the use of coal.) The CCP has realized the disadvantages inherent in their prior state controlled industries and has privatized most of them. Even the banking system is being privatized with Western investors taking part ownership. - China wants to learn from them, especially about granting consumer credit, such as credit cards. The CCP understands that the US and EU are increasing unable to buy enough to keep their factories fully used. - That they need to expand the domestic market and that credit cards can help do that. (Currently typical Chinese urbanite has no debt and is saving 40% of his income to buy an apartment or car etc. - The Chinese are now buying more cars each month than Americans are.)

***When the US finally realizes that fossil energy is too costly both in damage to environment and in dollars, the public hearing and "not in my backyard" freedoms will make the rate of building new nuclear plants about one per decade, instead of one per month!
China built the world's largest (1km long!) most modern airport for the olympics in less time than the Brits spent in public hearing just to add a new terminal to London's Heathrow airport and it is artistic as well, winning prizes, with a curving roof of red tiles that make it look like a giant dragon from air.

Unlike the old USSR, China is very definitely in the economic game and rapidly closing the gap on the leader.

 

[John99]

China is growing stronger as the US is growing weaker.

who cares?

China and India have 40 percent of the earths population between them. One stronger and one weaker makes no difference to me. i dont see why it would be god for you, but i dont really care about that either.

 

[John99]

you know billy. i would seriously start worrying about things a little closer to home because according to a recent thread here.......

 

[Jozen-Bo]

you know billy. i would seriously start worrying about things a little closer to home because according to a recent thread here.......

These matters will have direct impact on what happens at home, they are connected. We will all be affected one way or another. Observing and identifying what is happening is the first step in finding a way to avert it, and why should America not be concerned with maintaining its economic strength? There is more to lose then just homes and cars....considering...

 

[Brian Foley]

Will it supersede US one day?

They way the US economy has been wrecked Mexico will supersede the US.

 

[Baron Max]

They way the US economy has been wrecked Mexico will supersede the US.

The USA was "wrecked" in the 20s and 30s, Brian, and we were still able to field an army to defeat both the Nazis in Europe and Japan in the Far East. Yet you think this little downturn is going to ruin the US enough that poor, little Mexico is going to conquer us? ...LOL!

Baron Max

 

[Billy T]

China again sold more cars than the US domestically (Probably many more in the export trade, but I have no data on that.)* In March China’s top 14 brands sold 1,030,000 (and about 30,000 more by the lesser brands) while the US sold only 858,000 cars. (Data form page B9 of Today’s Folio do Sao Paulo, and surely stolen from some good source, like WSJ of yesterday.)

Brazil’s monthly sales are recovering nicely from their Dec.2008 low of only 96,600, which was far below 2008’s ~2.8 million/ year due to both auto-industry strikes and more to fact other labor groups urged members etc. not to buy. (Sort of “Don’t cross our picket lines” POV.)
In Jan09: 184,700 were sold domestically
In Feb09: 202,900
In Mar09: 272,400 were sold domestically
If this first quarter rate continues the official projection is that Brazil will sell domestically 2,860,000 cars in 2009. If US continues to sell as in March, 12 times that is 10,416,000 cars. However, I think monthly sales are greatest in the spring so doubt US will sell 10 million in 2009.

Hell, with US sales dropping and Brazil's climbing even Brazil looks like it may pass the US in a couple of decades in industrial production. (Cars are a major users of steel, plastics, rubber, glass, paint, and cloth / leather so are a major driver of the domestic economy.) US will be lucky to sell three times as many cars in 2009 as Brazil does, if GM goes bust (which looks as certain as rain in spring, now).
----------------
*Few want the gas hog boats the US mainly sells in export to the very wealthy.

 

[quadraphonics]

This is something of a semantic point, but you should be saying "Country X purchased Y cars" and not "Country X sold Y cars domestically." The reason for this is that not all of the cars purchased in a given country are made there, and so it is often not "Country X" selling the cars that are bought there.

I.e., many of those cars that were bought in China were made by Ford or GM (some in China, and others not), and many of the cars bought in the US were made by Toyota or Honda (some made in the US, others not).

This is particularly important when you try to relate car purchases in a given country to industrial production there. Those two are only well correlated if a high percentage of the cars purchased in a given country are actually manufactured there, which is generally not the case.

Moreover, comparing the levels of manufacturing production between countries does not, by itself, tell you the whole story. You also have to account for what percentage of said manufacturing is owned by foreign entities. And when it comes to Chinese manufacturing, the answer is that a quite large percentage of it is owned by foreign entities - particularly American ones. Likewise, the last time I checked, US auto manufacturers have a huge market share in the Brazilian car market.

Finally, trends in durable goods sales are the absolute last thing you should be looking at to make predictions in the current conditions. This is because durable goods are the most volatile segment of the manufacturing market, and so the least informative. When the economy goes south, in particular, durable goods take the biggest, earliest hits. This is because it is much easier for consumers to defer purchases of durable goods, than non-durable goods like food and fuel.

 

[Billy T]

This is something of a semantic point, but you should be saying "Country X purchased Y cars" and not "Country X sold Y cars domestically." The reason for this is that not all of the cars purchased in a given country are made there, and so it is often not "Country X" selling the cars that are bought there.

That is certainly true but I was mainly trying to indicate market size. The point I am making here in several other post is that China's market is rapidly growing. (up 18.8% 2007 vs 2006 & 22% 2008 vs 2007 as I try to document my years old prediction that the day will come when China will tell the US to go to hell -We do not need you to buy our production, and that the US's green paper is just that -green paper of little value.

Also there should not be confusion by my post, which started:

China again sold more cars than the US domestically (Probably many more in the export trade, but I have no data on that.)* In March China’s top 14 brands sold 1,030,000 (and about 30,000 more by the lesser brands) while the US sold only 858,000 cars. ...

The 1.03 million is the production figures for the top 14 producer's sales in China. (That is what I ment by China's top 14 brands, but would have been better to say China's top 14 producers as perhaps a few are international brands.) This number was constructed by the Chinese Department of Industry, but name may be a little different as I am translating my newspaper's Portugese (which may be a translation from ?) into English for you et. al. They have called it "preliminary data" and only estimate it will become 1.06 million made and sold in China when the lessor producers have reported. When one does consider the exports of chinese made cars the production number will be somewhat higher as will be domestic sales due to the imports.

I.e., many of those cars that were bought in China were made by Ford or GM (some in China, and others not), and many of the cars bought in the US were made by Toyota or Honda (some made in the US, others not).
This is particularly important when you try to relate car purchases in a given country to industrial production there. Those two are only well correlated if a high percentage of the cars purchased in a given country are actually manufactured there, which is generally not the case.
Moreover, comparing the levels of manufacturing production between countries does not, by itself, tell you the whole story. You also have to account for what percentage of said manufacturing is owned by foreign entities. And when it comes to Chinese manufacturing, the answer is that a quite large percentage of it is owned by foreign entities - particularly American ones. Likewise, the last time I checked, US auto manufacturers have a huge market share in the Brazilian car market.

All true, but not my point about the rapid growth of Chinese domestic demand. In this day of globalized auto industry practically no car is 100% made in any one country. Today I read, in Forbes I think, that a Chinese auto company has bought the brake division of GM’s bankrupt Delco division.

VW & Fiat sort of take turns at first place in sales in Brazil. I think ~ 95% of cars sold in Brazil are assembled in Brazil, and mostly from Brazilian parts, especially the flex fuel motors. There was a 100% Brazilain car maker, called Gurgel. It made ugly flat-surface, box-like cars with a bad motor. You still see a few on the roads going as fast as they can but blocking traffic and blowing smoke out the exhaust.

Some new enterprise claims to be selling Tata motors new Nano here at ~3 times the price in India, but that is still half the price of the cheapest new car for sale in Brazil. There is a good chance Tata will sell them here when they get to making 4 or 5 million every year. They may even build them here for the South American market which is also growing. Ford’s March sales in Brazil were up 17.4% YoY and Ford is investing 3.2 billion to expand current production and introduce two new models by 2011. Brazil may not be China but its car production sure is growing instead of shrinking like in the US.

SUMMARY
I was not concerned with the company that made the cars, but the market size for them. The US market is in free fall. China's is exploding. That was my point.