Rebalancing the Global Economy
"...The important thing isn’t China’s ranking, nor the total value of China’s production, nor even the extraordinary speed by which China has reached #2.
What’s most important is the share China’s production received and consumed by the Chinese themselves. The problem is it continues to drop.
China has dozens of billionaires but the vast majority of the Chinese are still extremely poor. The typical Chinese lives off the equivalent of about $3,600 a year. That puts him behind workers in 126 other countries. (The typical Japanese earns the equivalent of about $39,000; the typical American, $46,400.)
If the wages and purchasing power of Chinese households continues to rise more slowly than China’s capacity to produce goods and services — more slowly than China’s corporate profits and the government’s share of national income — we’re all in trouble."
From a sharp post by Robert Reich. In other words, in terms of GDP, China rocketed to number 2. But in terms of GDP per capita, China's not even in the top hundred countries.
Think about that for a second. Because written into it is the next great stage of the global macropocalypse. Think China's going to save the world (or at least the global economy)? Unfortunately, unless per capita GDP skyrockets, and purchasing power explodes - it probably won't, anytime soon.
What the startling mismatch between those two numbers - without parallel in modern economic history - implies is a economy with structurally shaky foundations. The price of an exchange rate regime that subsidizes exports is lending to those who are buying exports in the first place (ie, buying dollars, and selling RMB, to put it crudely). So domestic consumption isn't just foregone - it's systemically, structurally limited. That China has a stunted retail finance sector, with constraints on consumer lending, that it has failed to shift past intermediate goods heavy industries, that it's service sector is underdeveloped, and that it has overinvested in a classic heavy, industrialized asset bubble - all are inevitable symptoms of this deeper imbalance; one of, essentially, overproduction.
Call it, if you like, an institutionalized general glut. Too many Hummers for too few dollars, euros, and renminbi. So the question is: who will continue buying into the decayed institutions of industrial age capitalism - and who will make the leap to creating 21st century capitalism?
