The trillion dollar question
A very interesting article in the Telegraph talks about the shift in economic muscle taking place between China and America in the current economic crisis.
To simplify the story, think of an unhappy marriage in which one partner does all the saving, while the other does all the spending. (We all know at least one couple like that.) But then the partner with the retail therapy habit maxes out on his/her credit cards. At the same time, the parsimonious partner finds her/his job under threat. What previously was a stable relationship is suddenly on the rocks.
To me, it's not a question. People who work hard and save money always do better than fly-by-nights who borrow, spend, and then borrow more. The same will apply for nations. If an American bank predicts China's GDP to overtake America's by 2027, my bet is that we won't have to wait that long.
How will China cope?
An interested question that has started coming up in some side columns is the likely effect of the global economic crisis on China. Robert Peston has even gone there for a week to report from the ground, ignoring his reporting here at home.
Clearly, the Chinese government is better prepared for this than the West - with well capitalised banks, and a big fiscal surplus in recent years, the Chinese can at least count on borrowing and government spending for some time.
However, the problem remains. If there is no demand for your products, loans to keep a business going serve little purpose.
I hear that the Chinese have started a big campaign to boost internal demand. They are encouraging people to buy household appliances and cars. In economic terms, this is encouraging using some of those savings that have accummulated to prop up businesses in this downturn. It's better to equip each house with a TV at the expense of the state than to close down the TV factory.
In real terms, what we are actually seeing is the beginnings of a massive increase in living standards for the biggest nation on earth - while the West is experiencing the sharpest decrease in living standards in decades.
Is this the time when the world really converges? Globalisation scholars will tell you that this shift was long overdue. I bet some people in the West never wanted, and still don't want to hear.