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America Outmatches China Economically (For Now)

Posted By Derek Scissors, Ph.D. On April 15, 2011 @ 10:43 am In International | Comments Disabled

China announced its economic results for the first quarter this morning. GDP was said to grow a strong 9.7 percent, while consumer inflation reached a worrisome 5 percent.

Frankly, most Americans shouldn’t care that much. China’s economic importance is being overstated now, and even its considerable economic potential is sometimes overstated. [1]

The PRC is much poorer than the U.S., and its economic problems are considerable. The average American made more than 12 times as much as the average Chinese in 2009.

That is because Americans are far more productive workers. Yet, even at a time of very high American unemployment, true Chinese unemployment is much higher. Almost any measure of pollution shows the PRC suffering far more. In sum, America’s financial, human, and physical resources dwarf China’s.

But what about the future—isn’t China growing quickly? For now, yes. But there are fundamental reasons to question how long this will last [2].

Future growth isn’t about how well you did in the past. If it were, Japan would now rule the economic world, as many thought in 1990. Growth is about resources and policy. Since the resource comparison strongly favors the U.S., that leaves policy.

Chinese policy isn’t very good right now. The PRC’s government has been warning of too much investment and too little consumption since 2004, but the problem just gets worse. Even in the first quarter of this year, investment grew far faster than consumption.

Investment has been growing at better than a 25 percent annual clip for almost nine years, but you can’t manufacture good projects to invest in like that. The return on all the money China is spending is getting very low.

Unfortunately, this is one area where the U.S. doesn’t have an advantage. U.S. economic policies are also very poor, topped by a gigantic budget deficit [3].

If American policy improves, there’s no reason to be concerned about competition with China. If the U.S. remains on this disastrous economic path, however, we’ll have bigger worries than what China is up to.


Article printed from The Foundry: Conservative Policy News from The Heritage Foundation: http://blog.heritage.org

URL to article: http://blog.heritage.org/2011/04/15/america-outmatches-china-economically-for-now/

URLs in this post:

[1] China’s economic importance is being overstated now, and even its considerable economic potential is sometimes overstated.: http://www.heritage.org/Research/Reports/2011/04/The-United-States-vs-China-Which-Economy-Is-Bigger-Which-Is-Better

[2] question how long this will last: http://www.washingtonpost.com/opinions/what-if-chinas-economic-expansion-is-about-to-slow/2011/04/12/AF8BN6eD_story.html

[3] gigantic budget deficit: http://www.heritage.org/Research/Testimony/2011/04/Perspectives-on-Deficit-Reduction

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