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There are many who predict that the increasing economic and political power of Asia will make the 21st century the “Asian century”. Given that several forecasts about China’s economic development see China overtaking the U.S. as the world’s largest economy in terms of GDP well before mid-century, there is a chance that Asia’s leading economies could dominate the world throughout the latter half of this century.

What people tend to forget is that China had been the world’s largest economy before 1890. However, in the 19th century, the spreading influence of European imperial powers, most notably Britain, began to destabilize China which had been isolating itself for many centuries. The ruling Qing Dynasty was weakened after its defeat in the First Opium War (1839-1842) against Britain. Forced to open up to foreign trade and to allow Britain to sell opium to Chinese people, China’s destabilization intensified and led to several rebellions against the Qing rulers and foreign colonizers, missionaries and diplomats. When the rebels and the Qing rulers sided in the Boxer Rebellion (1899 - 1901) against the foreign intruders, six Western nations, Japan and Russia formed the Eight-Nation Alliance to smash the uprising. What followed was a multipolar world in which Britain, the United States, Japan and several other European powers dominated.

After the two world wars, Europe was destroyed, impoverished and stripped off its political, economic and military power. The United States further strengthened its position as the world’s largest economy and took the lead in shaping the post-war world order. To contain the expansion of the Soviet Union, the U.S. also increased its military presence in the world.

While American lifestyle and ideals influenced much of the Western world and Japan throughout the Cold War, this trend intensified after the collapse of the Soviet Union when the United States emerged as the world’s only superpower. The American share of global GDP is almost three times as big as Japan’s - the current number two.

Despite China’s enormous population of more than 1,300 million people compared to around 300 million Americans, the country is still far from generating a GDP that equals America’s. And even if China manages to quadruple its GDP in the coming decades - what will be a challenge given the necessity to fix its environmental problems and maintain stability in a country with a population this big - the Asian superpower would still lag behind significantly in per capita GDP.

from : http://www.wikinvest.com/images/6/6e/10-03-15China1.jpg

Still, it is very likely that China will catch up in terms of total GDP before 2050. For one and a half centuries, China has given up its leadership position while suffering from colonialism in the first half of the 20th century and communism in the second half. But in the long run, this was just a temporary weakness.

The financial crisis has put a heavy burden on future growth in the U.S. and Europe. Out-of-control government and private debt are undermining economic stability and a solid recovery in the West.

China, in contrast, has huge currency reserves, solid growth rates and a rapidly growing domestic market. The financial crisis has not halted China’s race to catch up, but accelerated it. As exports nosedived as a result of the recession in the U.S. and Europe, China was forced to stop its reliance on exports for growth and tapped the huge potential of its domestic market. Consequently, China’s GDP is growing at a rate between 8 and 9 percent even though China is experiencing its first trade deficit in 70 months. In March, the worth of China’s imports exceeded the worth of its exports by around $360 million. (San Francisco Chronicle: China’s Surprise Trade Deficit Means Nothing About The Yuan-Dollar Peg)

China has become a major motor of growth in a world that is slowly pulling out of a deep recession.

The recent meeting of Treasury Secretary Timothy Geithner with a Chinese official earlier this weak during which the U.S. assured it would not officially allege China of manipulating its currency,  has helped to create an environment that would allow the Chinese government to allow its artificially undervalued currency, the yuan, to rise slightly against the U.S. dollar without admitting to be bowing to pressure from Washington. -> http://www.thestar.com/business/article/792608–diplomacy-could-cool-yuan-as-hot-topic

If tensions between Washington and Beijing over trade policy ease off, China can work towards a more balanced foreign trade that doesn’t create too high surpluses or deficits. In the long term, a moderate appreciation of the yuan towards other currencies can make the Chinese currency the next number three reserve currency of the world after the dollar and the euro.

China is constantly transforming itself. As the country struggles to find new sources of growth to create jobs for the millions of migrant workers moving to urban areas, it has to leave more space for private initiatives and participation. Numerous private enterprises are forming that are becoming global players by targeting key international growth markets such as telecommunication, clean energy technologies and electric mobility.

One of those highly innovative high-tech companies is Huawei, a networking and telecommunications equipment provider with research and development centers inside of China as well as in Silicon Valley, Dallas, Stockholm, Moscow and Jakarta. The company based in Shenzhen has become the world’s number two in the mobile equipment industry with a market share of 20%. (Reuters: http://www.reuters.com/article/idUSLD56804020091113)

Another private Chinese enterprise which is becoming a successful global player is the battery and car producer BYD (Build Your Dreams), also headquartered in Shenzhen, Guangdong Province, China. Founded in 1995 by Wang Chuanfu, the wealthiest man in China as of 2009, the company has become one of the top four manufacturers of rechargeable batteries worldwide. Now BYD is investing heavily in electric cars. BYD’s goal is to become the world’s largest auto maker in the medium term, primarily by selling electric cars at a competitive price. The huge advantage of BYD is the company’s expertise in producing rechargeable batteries. The battery is the most costly and most complex component of an electric car. It determines the driving range, price and duration of recharging. The company has developed a promising lithium iron phosphate battery that is used in the e6 all-electric car. -> http://en.wikipedia.org/wiki/BYD_e6

Skeptics of the company’s claimed goals may want to hear that investment legend Warren Buffet has acquired a 10% stake in the company for $230 million. (Warren Buffett takes charge)

 

In the coming years, Western companies of all industries will have to face increasing competition from China. While in the past, China’s low labor costs and nonexistent enivronmental standards gave it an edge over Western labor-intensive industries, the new wave of Chinese global players will target innovation-intensive industries and compete by bringing cutting-edge technology to Western markets at an affordable price.

This entry was posted on Friday, April 9th, 2010 at 6:38 AM and is filed under China, Economy, Electric Cars & Auto Industry, Globalization, Politics. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.