Saturday, July 31, 2010

China's Place In The Sun Now Up To Second Place

This is happening faster than most mainstream analysts expected.  China's economy is supposedly about to become larger than Japan's:

China is set to overtake Japan as the world's second-largest economy in a resurgence that is changing everything from the global balance of military and financial power to how cars are designed.

By some measures it has already moved to second place after the U.S. in total economic output -- a milestone that would underline a pre-eminence not seen since the 18th century, when the Middle Kingdom last served as Asia's military, technological and cultural power.

I gave it the caveat "supposedly" because China's own stats on growth are even more malleable and unreliable than the U.S. government's stats (which isn't saying much).  This news gives Japan an incentive to adjust its own growth stats upwards to preserve national pride, as if what the world needs is more fudged numbers. 

The larger story is of course how this affects the Anglo-West.  China's projected ability to match the U.S.'s GDP by 2010 with its workers earning one fourth the income of a U.S. worker will further arbitrage global wages downward.  U.S. workers can thus expect to see their standard of living shrink by, oh, let's say 75% or so to entice global capital markets to commit investment here.  Try unionizing a shop in that environment, Teamsters.  Maybe we could then view the U.S. as a new emerging market.  The more appropriate term might be re-emerging market; after the U.S. gets rid of its debt through default or hyperinflation, it will be about as desirable a place to commit investment as Argentina. 

Full disclosure:  Long FXI with covered calls and cash-covered short puts.