China Struggles to Lead

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China Struggles to Lead

According to the latest headlines, China is getting ready to emerge as the world's greatest economic superpower.  But most of the stories in the business and financial press provide only a one-dimensional view of China's situation. 

For example, Bloomberg1recently reported that China surpassed the United States as the world's largest auto market and a story in The Wall Street Journal2 states that Japan has yielded the title of the world's top manufacturer of automobiles to China.  The Associated Press3 reported that China had recently surpassed Germany as the largest exporter in the world and the Financial Times4 noted that Chinese banks recently overtook their U.S. counterparts. 

Robert Fogel, a Nobel Prize-winning economist, recently forecast that the Chinese economy would grow to $123 trillion by 2040, double the entire global economy today.  He also predicted that per capita income in China would reach $85,000 — three times the income level seen today in Europe.5 

China's growth in recent years has been reported at 10 percent, on average, and it stayed strong, at 8 percent, even during the depths of the recent recession.  It will supposedly hit 9.5 percent in 2010.  By comparison, according to a CNNMoney.com6 report, most economists are predicting that U.S. economic growth will be only about 3 percent this year. 

In recent years, this has led to a growing consensus that China will become the global economic "top dog" within the foreseeable future. 

This view, however, fails to acknowledge that China has a lot more problems than most people realize, including: 

  • A growing real estate bubble.
  • Intensive economic investments directed at the wrong priorities.
  • Internal unrest, as glimpsed in its desperate efforts to censor Google.
  • Growing disputes with its biggest trading partners, including the U.S.

Much of this comes down to the fact that China's current leadership and its institutions have no real experience in global leadership. 

So let's compare the illusion with the reality.  Will China be able to maintain its economic growth as it moves beyond merely being "the world's factory"?  Will it succeed in assuming the kind of role that is expected of an enormous economic power?  Or will it stumble from crisis to crisis because of its inexperience in everything from geopolitics to managing foreign investments?

First, let's take a closer look at those economic figures...

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