Anyway, while reading the Evening Standard on my journey back from work, the prolific Jim O'Neill had yet another feature, this time on why China's economic rise shouldn't be feared but welcomed. In classic liberal fashion--he still represents an investment bank, after all--the win-win aspects are what he chooses to highlight. (It reminds me of Henry Paulson in his pre-Treasury days, actually.) The occasion was official confirmation that the Chinese economy had surpassed that of Japan--and not by a small margin, mind you:
Yesterday's estimate for Japan's GDP growth in the final quarter of 2010, or rather the lack of growth, was not a surprise. More interesting was that it confirmed China's status as the number two global economy. It wasn't even close: China's GDP stands at around $5.9 trillion, Japan at about $5.4 trillion. The speed of China's ascent relative to Japan is quite remarkable even by my own optimistic standards.It's interesting stuff, though I don't think services liberalization for the benefit of Western firms will happen any more rapidly than it has in the past. Which is to say rather slow especially in financial services. Moreover, China isn't likely to be inundated with FILCH (Failed In London, CHina-bound) British expatriates unless they happen to speak fluent Mandarin. While I appreciate that financial deepening is something desirable in China, especially the provision of sophisticated forms of consumer credit that can make the PRC rely more on domestic instead of international consumption, the West has done itself no favours during the global financial crisis in inspiring confidence in this respect.
When back in 2001 I first looked at China's remarkable potential at the core of the broader BRIC group - Brazil, Russia, India and China - it wasn't even on my radar that China would overtake Japan as soon as 2010. I was ambitious enough to suggest China would surpass Germany. In 2003, when my team first looked at the world's 2050 potential, we expected China to overtake Japan by 2015. So it has happened five years early.
There is nothing quite like this China phenomenon in modern history. Since 2001, China's economy has grown by $4.3 trillion, in the process effectively creating more than another two of itself than existed in 2001. That growth is equivalent to creating more than two new United Kingdoms.
As the base size of China gets bigger, so does its impact. If China succeeds in growing by the forecasting consensus view of around nine per cent this year, with inflation at around four to five per cent and its currency rising a bit, the end of last year's $5.9 trillion will be close to $7 trillion by the end of this year. In other words, China will create the economic equivalent of another Korea in one year - or one-and-a-half UKs.
Contrary to many perceptions, China is not achieving this growth at everyone else's expense. That is an out-of-date story. Last year China's imports totalled close to $1.4 trillion, and they increased by a massive $400 billion in just that year. Maintained at this pace, within another five years, China's imports will be bigger than those of the US.
Quite simply, China is the single biggest story for us all - and I've been impressed by how the UK Government is grasping it, especially the need to export. This could be our get-out-of-jail-free card. Providing support and encouraging all our manufacturing and, perhaps even more importantly, our service businesses to penetrate further into China is critical.
In this regard, it is imperative that any controls on immigration [by the PRC] don't clash with the importance of this goal (which includes our educational exports too) for China and the other BRICs. It has become quite fashionable - again - to worry about China being some sort of bubble. I'm not sure why this view is so popular but it probably reflects a core belief that a non-democratic country cannot guide its economy to permanent success. Ultimately that might turn out to be true but the same accusations were made a decade ago - and look what has happened since.
The Chinese authorities will soon confirm their next five-year plan and its details. It is likely to embrace a further push towards their consumers and to take the economy away from being driven by exports. We should watch these developments at least as closely as our domestic budget: they are likely to be more important.
BTW, Manchester United fans will also know O'Neill as one of those who have tried to extricate the Red Devils from the revolting Glazer family. Alas, that is a work in progress--unlike the emergence of major emerging economies.