The US or China?

The 21st century is a witness to China’s growth, which treads in the footprints of the United States — a world power in every field. However, while Americans remain on top, the debate is centered on which of the two countries will be the economic superpower of this century.

BBC World collected the opinions of several analysts who dissected the 2008 financial crash — a crisis that revealed the fragility of the United States in recent years and the relentless boom of China, the great dragon tiger of the Asian economy.

The debate centers on when China will surpass the United States: 2015, 2030 or mid-century. In any case, the U.S. decline may be as inevitable as that of the former British Empire which, at the end of the 19th century, began to show signs of weakness that became irreversible in the first decades of the 20th century.

Today, the controversy has reopened. The co-author of “The American Phoenix,” Charles Dumas, believes that China is an unsustainable house of cards, while the United States is showing signs of recovery.

“China has grown alongside an absolutely unsustainable investment and export model, which is exhausted because America is no longer able to absorb its products. The U.S. is again showing its ability to reinvent itself,” Dumas comments.*

On the opposite side of the spectrum, we find Arvind Subramanian, from the Peterson Institute in Washington, and author of “Eclipse: Living in the Shadow of China’s Economic Dominance.” “Because of demographic power, internal dynamism and extraordinary financial capacity, China will displace the United States,” says Subramanian.*

Yet, the communist leadership never tires of emphasizing that China is a developing country with urgent economic and social problems. A pair of data validates this thesis. The U.S. per capita income is six times greater than China’s. And in the Human Development Index of the UN, China is in 101st place, beneath the majority of Latin American countries — and surpassing only El Salvador, Paraguay, Bolivia, Honduras and Nicaragua.

However, in 2011, when the eurozone started to disintegrate, its leaders did not seek a solution in the United States — such as the Marshall Plan after World War II — but rather looked toward China.

In its three decades of growth, averaging an annual increase of 10 percent, China has become the largest financial reserve in the world: about $3 billion — 30 percent of global reserves.

Like other Asian nations — namely, Japan and South Korea — China grew by leaps and bounds by dint of an export model with cheap labor and a favorable international situation.

This model is wearing down today by the imbalances produced by the U.S. and other economies. The massive government investments of 2008 and 2009 cannot replace it and run the risk of generating unsustainable bubbles, experts cite.

“China has grown with an investment of nearly half of the gross domestic product (GDP). Meanwhile, domestic consumption constitutes only 34 percent. This model represents an unsustainable distortion,” says Dumas.*

Between 2009 and 2010, Chinese banks lent about $3 billion. The pessimists, who predict a hard landing for the Chinese economy, estimate that 30 percent of these loans may be in default.

In the 1980s, Japan was the shadow that threatened U.S. power: A real estate bubble at the end of that decade led to a stagnation of nearly two decades. Is this a mirror of China?

Weaknesses

If not everything highlights the Chinese situation, in the United States the imbalances and signals of decline have been evident for some time. The enormous trade deficit was based on a model that, according to critics, is also untenable. The actual real wage is the same as in the 1970s. Public-private debt is three times the national GDP.

“America is like a building that was regal a long time ago. Today, the upper floors, the richest, continue expanding, those in the middle are shrinking, the underdogs are flooded and the elevator does not work,” says Subramanian.*

Despite this disjointed social landscape, the U.S. continues to dominate a key sector of the modern economy: technological innovation. The greatest inventions of the last decade — from Windows to Facebook — have come from the United States.

With the financial crash of 2008, a paradigm shift was launched. If, between 1982 and 2007, growth was based on consumption financed with easy credit, to the detriment of industry, today the United States has returned to export: Foreign sales were nearly half of its economic growth of 2011.

Moreover, it is the first time that the end of American hegemony seems inevitable.

Japan in the 1980s is the case most similar to China, but in the 1950s and 1960s, the prediction was that the now-defunct Soviet Union would leave the United States behind.

What Is the Scenario?

The reality is that the future is a territory that, by definition, no one will ever have walked: Our predictions are a mix of past and present data, colored by our desires or fears, analysts say.

Chinese demographic weight is an undeniable reality. With four times the population of the United States, China just needs to move a bit in productivity per capita to reach the U.S. GDP.

But its weaknesses are also in view. The institutional deficit, the need to rebalance growth and living standards throughout the country are huge challenges.

The United States also has weaknesses, because no empire is eternal; the U.S. is no exception. As Shaun Breslin, author of “China and the Global Political Economy” points out, the result will be more nuanced than a simple victory or defeat.

“China’s military level will not reach that of the United States. But China’s population gravitation will not be like Japan’s in 1980. Its importance worldwide is very clear, as seen by the impact in Latin America and developing countries,” Breslin affirms.*

To a large extent, the key will be in how each stands out in an uncertain economic and financial crisis that erupted in 2007-2008 and that still overshadows the big picture.

*Editor’s Note: These quotations, while accurately translated, were unable to be verified.