Articles & Blogs - International Commentary

There can be no doubt that there are two, dominant economies in the world today: China and the United States. However, while China dominates as the new growth “engine” of the world economy, the U.S. dominates as the largest dead-beat the world has ever seen – trying its best to borrow the surpluses of all the world's productive economies.

This is not the first time I've directly compared the two economies (see “China: last economy to slow, first to recover”), however this time I will focus the comparison almost exclusively on debt versus savings – which makes the future paths for these two economies abundantly clear.

The current strength of China's economy is clear for all to see. It's manufacturing sector not only continues its impressive growth, but is steadily marching toward “high-end” manufacturing – where it has already surpassed the U.S. in automobile production.

Meanwhile, China's domestic economy, and consumer demand have demonstrated an even more spectacular performance – with China already becoming the largest automobile consumer in the world (“China's consumer confidence demonstrates robust economy”).

What makes this economic performance much more spectacular is that the explosion of China's domestic economy has occurred while individual Chinese citizens maintained an almost unimaginable savings rate of between 30% and 40%! It was this phenomenal pool of savings which immediately convinced me that China would decouple from the rest of the world when the global economy “crashed” last fall.

Sure enough, while most of the rest of the world plunged into recession, China suffered nothing more than a short “hiccup” in its growth.

On the other side of China's “balance sheet”, the national debt of China is a totally insignificant number, roughly equal to the national debt of Canada – at less than $1/2 trillion. Of course, China has roughly forty times as large a population, a much larger economy, and a much higher rate of both current and long-term growth.

Thus, China looks to the future with the following fundamentals in support. It has the world's largest manufacturing base, the world's largest population (meaning an essentially infinite supply of “cheap labour”), the fastest-growing domestic economy, virtually no national debt, and the world's largest pool of savings to fund (on a sustainable basis) rapidly increasing consumption and rapidly increasing investment in building China's economy much larger.

These facts are in direct contrast with the drivel which has been emanating from the U.S. propaganda machine. The talking-heads continue to pretend that China's economy is dependent on U.S. imports for its vitality.

China's ability to shrug-off the collapse of the U.S. economy refutes this completely. Instead, it is U.S. consumers who are dependent on a continued stream of imported Chinese goods – in order to prevent their rapidly waning purchasing-power from leading to an even larger drop in the national standard of living.

Similarly, the propagandists continue to spout the insanity that China is somehow “forced” to continue to lend the U.S. vast sums of money. Try walking into the office of your banker, and telling him that due to the global economic downturn, he is “forced” to lend you money. Don't let the door hit you on the way out (see “China now in firm control of U.S. debt markets”)!