Will China Take Over the U.S. or Exhaust Its Own Growth?

With the total foreign trade value of 4.16 trillion dollars in 2013, China became the biggest player in international trade – the first developing country to earn this title in the past century. China’s trade volume doubled every four years over the past three decades. It only took China 16 years to leap from 100 billion dollars trade volume to 1 trillion. In comparison, to grow from 100 billion to 1 trillion, it took the U.S. 20 years, Germany 25 years, Japan and Britain 30 years respectively. From 1 trillion to 2 trillion, it took China 3 years, the U.S. and Germany 8 years respectively. Currently, China is the biggest trade partner of more than 120 countries – the whole world is enjoying the benefits of cheap goods brought by China.

Those are glories of the past. After decades of accelerating, China’s economic growth has slowed down –with GDP growth of 9.2%, 10.4%, 9.3% and 7.8% in from 2009 to 2012 (Source: the World Bank), we probably won’t see double-digit in this country ever again. Basically, there are two voices from the economists—one saying China is taking over the U.S.’s super-nation’s position, the other saying China will meet its peak soon and its advantages in international trade will be exhausted in no time.

Both voices have some truth.

China’s taking over certainly will not take place in any near future (if it will ever happen), but the U.S. has become extremely vigilant about that, as can be proved by the number of times “China” was mentioned by State of The Union. Thanks to heavy trade load, China’s yuan has become the second-most used currency in global trade finance. The U.S. has this “love-hate-mixed” feeling towards China –on the one hand, China is becoming an increasingly stronger rival the battle of international trade, and it has “stolen”, as many American people put, tons of jobs from the U.S.; on the other hand, the cheap goods manufactured in China are almost irresistible. How the U.S. will treat China will keep being one of the most talked topics.

us china strategic and economic dialogue

But not everyone is so confident about China’s future. The low wage is no more existent in China. Below is the average wage in manufacturing in China. With already tripled labor cost, China has gradually lost its core competitiveness in the world market.

Average hourly compensation costs of manufacturing employees in China, U.S. Dollars, 2002-2009

According to Heckscher–Ohlin theorem, a country will export goods that use its abundant factors intensively, and import goods that use its scarce factors intensively (Wikipedia: http://en.wikipedia.org/wiki/Heckscher%E2%80%93Ohlin_theorem). It is wise of China to start with its cheap labor to brace itself in the international trade battlefield. But since labor is no longer cheap, China has to explore another way to reinforce its position. Many Chinese scholars argue that the new way should be innovation.

As a Chinese, I’ve seen Chinese people’s wisdom in innovation and I am thrilled by their talent. If I have to apply Heckscher–Ohlin theorem here, I’d say innovation is definitely “abundant” in China. It is the loopholes in intellectual property laws that prevent China from taking advantage of its innovative people; instead, China has become a “pirate” who takes others’ innovation. Speaking of this, one of the respectful successes in the U.S. foundation was that the Fathers put the idea of patent into the country’s constitution.

A lot of things are undergoing changes now – the U.S. is focusing on bringing jobs back home, China has put more attention on innovation and intellectual property protection, China yuan has been appreciating over years (making its exports more expensive), Europe is becoming more and more cautious about its economy… It is hard to predict China’s future. But one thing can be sure—that trade will keep being a critical factor in China’s development.

 

Source:

1. Fion Li, Yuan Passes Euro as 2nd-Most used Trade-Finance Currency:

http://www.bloomberg.com/news/2013-12-03/yuan-passes-euro-to-be-second-most-used-trade-finance-currency.html

2. Neil Irwin, This One Number Explains How China Is Taking Over the World:

http://www.washingtonpost.com/blogs/wonkblog/wp/2013/12/03/this-one-number-explains-how-china-is-taking-over-the-world/

3. the World Bank data:

http://data.worldbank.org/country/china

4. Bureau of Labor Statistics:

http://www.bls.gov/fls/china.htm

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