Why is Taiwan lagging behind South Korea?

[momopi]

Geez, I could've written 1 sentence to answer that question:

Koreans are proud of "Made in Korea", versus Taiwanese don't trust "Made in Taiwan".


===============================

Why is Taiwan lagging behind South Korea?

Tuesday, June 8, 2010
By Jerry Lai

Taiwan and South Korea are highly competitive with each other, whether it be in sports, brand names or economic performance. But over the past 10 years, South Korea has gone from a per-capita gross domestic product (GDP) just 77 percent of Taiwan's to pull even and ultimately surpass Taiwan's per-capita GDP by 26 percent. How can this be?
South Korea is trumping Taiwan because of its relative stability, in particular its comparatively solid domestic demand market and a more diversified development of exports.

Looking strictly at GDP growth, the two countries split evenly, each besting the other exactly five years out of the last ten. But more detailed analysis by Shih Hsin University economics professor Chou Ji, going back 20 years to where the two countries' economic growth rates were on a par, shows Taiwan's year-on-year economic growth rate beginning to change at a rate just half that of South Korea. Over the most recent decade, Taiwan's average economic growth rate has lagged behind South Korea, with the fluctuations now giving South Korea a two-fold edge.

Dynamic Exports, Solid Domestic Demand

Foreign exchange rates have provided a big boost to South Korea. A report from Goldman Sachs Research found that of the increases in average per-capita income among South Koreans over the past decade, 80 percent could be attributed to the factor of rising foreign exchange rates, with real economic growth accounting for just 20 percent. Given the observable gap in relative "purchasing power parity" (PPP) figures that the two countries consistently maintain, it is clear that Taiwanese enjoys higher purchasing power.

In the foreign exchange market, Taiwan's central bank was more inclined to side with the nation's small- and medium-sized enterprises with more clear-cut intervention, fearing exchange rate fluctuations on the scale of South Korea's currency, the won, would doom those smaller businesses, which are a major pillar of Taiwan's economy.

Yet the volatility in South Korean exchange rates over the past decade has done little or no damage to South Korean export competitiveness. A decade ago, Taiwanese and South Korean exports remained extremely close in terms of value, but by last year the total value of South Korean exports had outstripped those of Taiwan by 80 percent, or NT$160 billion.

Moreover, a higher ratio of R&D investment has proven beneficial for exports by improving South Korean product technology and brand image in world markets.

Looking at export industries, electronics are the only export game in town for Taiwan, while South Korea has broadly diversified its development with vibrant shipbuilding, automobile manufacturing, semiconductors, wireless communications, machinery, LCD panels, steel and petrochemical sectors. Its relative risk diversification and market expansion capabilities are more robust than Taiwan's.

The stability of the domestic demand market has further been built atop an extremely stable domestic employment market. An International Institute for Management Development (IMD) report this year noted that keeping its unemployment rate under control had been South Korea's biggest competitive advantage. South Korea's overall unemployment rate of 3.65 percent last year ranked sixth in the world, while its long-term unemployment rate stood at an unbelievable zero percent, the world's best.

What sort of unemployment rate could be this low? The key factor behind the ultra-low unemployment numbers is unconventional hiring practices, an increasingly serious problem in South Korea. In 2008, sub-contractors, temp agency workers, and temporary employees accounted for more than 44 percent of the workforce. Additionally, comparatively rigid relations between labor and management make it difficult for South Korean firms to lay off full-time staff, even during tough economic times. In the IMD report, South Korea ranks 56th of 58 nations in terms of labor relations.

But the labor organizations that so severely damaged the competitiveness of South Korean industry during the 1980s and 1990s had moderated their stance considerably by the turn of the century, even to the extent that at the height of the financial crisis they were willing to accept temporary wage cuts in lieu of layoffs.

Once businesses returned to profitability, wages were adjusted accordingly. Between 2000 and 2008 overall industrial and service industry wages in Taiwan rose an average of 0.1 percent annually, while in South Korea wages averaged a 4.5 percent increase annually. A decade ago, wages in Taiwan and South Korea were on a par; now Taiwanese workers earn just 60 percent of what their South Korean counterparts make.

Government has been South Korean industry's strongest pillar of support. South Korean government largesse in the form of subsidies ranked third in the world, the IMD reported. South Korean government assistance to domestic industry was the biggest factor in helping South Korean industry weather the financial crisis, according to an April report from McKinsey & Co.

The South Korean government's performance is reflected in companies' ability to secure financing, market responsiveness and globalized capabilities, areas in which South Korean industry ranks among the top three in the world.

South Korean president Lee Myung-bak began his own career at Hyundai. Just prior to last Christmas, Lee made six telephone calls to United Arab Emirates president Sheikh Khalifa bin Zayed al Nahyan, and personally flew to Abu Dhabi to lobby the city state, succeeding in wresting from competitors like France and Japan a US$40 billion international contract to construct the world's largest nuclear power generation facility.

In the area of domestic demand, the relative strength of Korea and Taiwan lies in the results of their efforts to stimulate consumer credit spending. While the South Korean government has been willing to take the extreme measure of offering tax deductions for consumer spending using credit cards, this has not resulted in a financial industry crisis, as did the overuse of credit cards in Taiwan. South Korea has averted a meltdown by relying on stable wage increases across the board and a solid labor market, observes Rick Lo, senior vice president for macroeconomic research at Fubon Financial.

But it isn't just the South Korean government that has taken the initiative in propping up the economy; the nation's people have also been vigilant in protecting their turf. Last year news surfaced of a nationwide short-term debt crisis in South Korea. But the true cause of this phenomenon, Lo explains, goes back to 2008, when foreign investors dumped South Korean shares in a wave of profit-taking. In response, ordinary South Koreans came out of the woodwork to borrow funds from Japanese lenders at extremely low interest rates which they then used to buy South Korean equities. South Korean financial institutions were then able to underwrite long-term loans to foreigners at relatively higher interest rates and pocket the spread.

It's hard not to admire that kind of patriotism and determined self-sacrifice.

"But it's not easy for a dinosaur to change directions," Lo avers. In his opinion, the game South Korea is playing can result in both huge booms and huge busts.

As the old adage has it: "In ten years' time, the world can turn upside down." Initially, Taiwan and South Korea took remarkably similar paths on their respective journeys toward economic development. A decade from now, which will emerge on top? It's just too early to tell.

Translated from CommonWealth Magazine by Brian Kennedy.


Copyright © 1999 – 2010 The China Post.

[Rock]

Geez, I could've written 1 sentence to answer that question:

Koreans are proud of "Made in Korea", versus Taiwanese don't trust "Made in Taiwan".

On the ground feels like Taiwan has stagnated for the last 10 years or so. However, I don't attribute this specifically to Taiwanese not trusting "Made in Taiwan" products.

Unlike Japan and now South Korea, Taiwan has never been much of a brand builder. Sure, there are a handful of local names which have achieved some global traction. But the 'killer business model' from the 90s on has been export oriented original equipment/design manufacturing or OEM/ODM, especially in the upstream and downstream technology industry. Think TSMC, Realtek, Hon Hai/Foxconn, HTC, Winbond, Chimei, or Compal plus all their PRC subsidiaries just to name a few. The reality is, a very large percentage of what we Americans buy in the tech space (computers, cellphones, MP3 players, digital cameras, LCD and plasma monitors and TVs, etc.) is designed and produced by the Taiwan/China machine. Taiwan also does a lot of ODM manufacturing in more traditional sectors with many of these firms having gained a global Top 3 place in niche industries (bicycles, speakers, UPS power systems, door knobs and locks, motorized wheelchairs, car parts, etc.). And the country still has world class steel, petrochemical, and textile industries from earlier eras.

In the last 10 years or so, a lot of exciting things have happened in Asia. South Korea has created leading global brands while its domestic economy has emerged into a powerful force of 50 million predominantly middle class to affluent consumers. Singapore has broken firmly into the first world by usurping Switzerland’s role as the world’s private banking and wealth management center while replacing Hong Kong as the Asian base for many global banks and service firms. China’s economy, as the whole world knows, has exploded. And even Thailand has grown visibly richer in spite of political turmoil.

In contrast, Taiwan, like Japan, seems to have lost its way. Some blame this on the domestic political problems of the Chen administration which antagonized China and reduced cooperative business opportunities. In my view, this issue is not what Taiwan has done this decade but rather what it has failed to continue doing. In the 70s, 80s, and 90s, amazing things happened here. The earlier phases were government driven and the latter phases were the product of innovative local business people and groups. Somehow, the creative value-added process stalled. Taiwan did not re-invent itself again to avoid maturation and stagnation. The more difficult question is why and any reasons I throw-up are just conjecture.

But there is a silver lining to Taiwan's relative wealth decline. The mature levels of economic growth here and the hollowing-out of the industrial base have created deflationary pressure which has held prices in check. The USD nominal cost of living here has not changed much in the last ten years. Rents and labor are about the same. Thus, for residents whose livelihood does not depend on the local economy (retired persons or people who make their money from overseas such as Internet entrepreneurs), the real cost of living has become cheaper while the quality of life has improved markedly given substantial infrastructure upgrades. In contrast, nominal USD living costs in South Korea, Singapore, China, and Thailand have rocketed for many consumables and/or fixed assets. I used to think of Bangkok as a super cheap place to live, especially after the Asian Financial Crisis of 1998. But today, I could probably enjoy a similar standard of living in say Taichung for the same total USD cost. Even Taipei is as cheap if not cheaper than Bangkok for some things (decent medical care, electronics, high level public transport, furniture, Internet service).

[globetrotter]

China is overtaking Taiwan and the fact is that eventually Taiwan will become a proper province, likely another SAR, of the PRC. While this would be good for Beijing it isn't 'all that' like it was 15 years ago. China has massive CRH and Nuclear and Hydro projects underway and within 10 or 15 years will be able to sell surplus electricity, from one of its 132 Nuclear Power plants, to all of neighboring SE Asia. Certainly reunification with PRC is a goal for the Province of Chinese Taipei, but economic success may put that on the back burner. As events stand today the PRC will soon surpass Taiwan and simply have no need for the 'advanced technology' that they now possess.

[momopi]

If you add up all of Taiwan's immigration to the US from 1950 to 2010, plus children of 1st generation immigrants, they total about 500,000 to 600,000.

In comparison, over the last 20 years, approx. 1 to 2 million Taiwanese has relocated to China, of which 600,000 to 1 million are estimated to be living in the greater Shanghai area. This number is "fuzzy" since there are no official stats, but considering that Taiwan's total registered population is 23 million, it'd be safe to say 5+% of Taiwan's population has moved to China.

Most of the Taiwanese that move to China are young to middle working age men and women. So if anyone has to ask "what happened to Taiwan's economic growth", well, they "moved".

[Rock]

China is overtaking Taiwan and the fact is that eventually Taiwan will become a proper province, likely another SAR, of the PRC. While this would be good for Beijing it isn't 'all that' like it was 15 years ago. China has massive CRH and Nuclear and Hydro projects underway and within 10 or 15 years will be able to sell surplus electricity, from one of its 132 Nuclear Power plants, to all of neighboring SE Asia. Certainly reunification with PRC is a goal for the Province of Chinese Taipei, but economic success may put that on the back burner. As events stand today the PRC will soon surpass Taiwan and simply have no need for the 'advanced technology' that they now possess.

What do you mean by 'overtaking Taiwan'?

If your talking about the total size of economy, that happened around 20 years ago. Today, China's nominal GDP is the 3rd largest in the world and will soon overtake Japan to become No. 2. If you throw in a purchasing power parity (PPP) adjustment, it leaps way ahead of Japan and accounts for over 60% of the total US economy.

But if you are referring to nominal per capita GDP, it will still take a lot more time for China to reach Taiwan's level. The per capita figure for Taiwan is about 4.5 times that of the PRC. Thus, even if China's figure grew at 10% per annum and Taiwan's figure remained flat, it would take over 15 more years for it to catch up.

Surprisingly, if you adjust for PPP, China's per capita GDP as a percentage of Taiwan's actually shrinks slightly; to about 1/5. And I don't believe China will catch-up here any earlier than for the nominal calculation. As I stated in my first post above, Taiwan has become significantly cheaper with all the deflationary pressure it has faced. China on the other hand is suffering typical inflationary forces of growth - wage inflation and asset price inflation compounded by an artificially constrained currency. The first tier cities in China are in many ways already more expensive than Taipei and the second tier cities are catching-up. The PPP adjustment factor as used by the IMF already favors Taiwan slightly and as time passes, it will likely favor it even more.

Just to put things into perspective, Japan's real economic growth has been nearly flat for two decades. Yet it is still a relatively very rich country. China on the other hand, has enjoyed explosive and largely uninterrupted growth during the same period. But it still has a high percentage of poor peasants with just a high school education or less. The massive wealth and education from the top are trickling down fast. But it will still take a lot more time to bring 100s of millions of peasants into the middle class.

Re-unification has largely been reduced to just a face issue at this stage in the game. Taiwan’s golden goose technology industry has moved the bulk of its capital, assets, and human resources to PRC soil. And as momopi has mentioned in several posts, a significant number of working age Taiwanese have re-located to the mainland and continue to do so. Taiwan’s economy has little expansion hope if it does not continue to integrate with the PRC’s. Whatever Taiwan has, China has it bigger, better, and/or cheaper. While Chen moved Taiwan in the direction of independence during his two terms, China quietly absorbed its most valuable resources – technology, capital, and the cream of its brainpower. The endgame for China may simply be to continue integrating and absorbing Taiwan Inc. as long as its ‘representatives’ play ball politically.

[Rock]

If you add up all of Taiwan's immigration to the US from 1950 to 2010, plus children of 1st generation immigrants, they total about 500,000 to 600,000.

In comparison, over the last 20 years, approx. 1 to 2 million Taiwanese has relocated to China, of which 600,000 to 1 million are estimated to be living in the greater Shanghai area. This number is "fuzzy" since there are no official stats, but considering that Taiwan's total registered population is 23 million, it'd be safe to say 5+% of Taiwan's population has moved to China.

Most of the Taiwanese that move to China are young to middle working age men and women. So if anyone has to ask "what happened to Taiwan's economic growth", well, they "moved".

Excellent points.

If I understand correctly, you believe Taiwan's true population is less than its stated population.

Does Taiwan calculate its population based on citizenship or residency? If its the former, the local population growth rate registered over the last 10 years is not an accurate proxy for the labor force growth rate. Shrinking no. of employees = shrinking output = shrinking GDP (keeping wages and productivity constant). Make sense?

Go abroad to work and come back when you're ready to retire.

[globetrotter]

China is overtaking Taiwan and the fact is that eventually Taiwan will become a proper province, likely another SAR, of the PRC. While this would be good for Beijing it isn't 'all that' like it was 15 years ago. China has massive CRH and Nuclear and Hydro projects underway and within 10 or 15 years will be able to sell surplus electricity, from one of its 132 Nuclear Power plants, to all of neighboring SE Asia. Certainly reunification with PRC is a goal for the Province of Chinese Taipei, but economic success may put that on the back burner. As events stand today the PRC will soon surpass Taiwan and simply have no need for the 'advanced technology' that they now possess.

What do you mean by 'overtaking Taiwan'?

If your talking about the total size of economy, that happened around 20 years ago. Today, China's nominal GDP is the 3rd largest in the world and will soon overtake Japan to become No. 2. If you throw in a purchasing power parity (PPP) adjustment, it leaps way ahead of Japan and accounts for over 60% of the total US economy.

But if you are referring to nominal per capita GDP, it will still take a lot more time for China to reach Taiwan's level. The per capita figure for Taiwan is about 4.5 times that of the PRC. Thus, even if China's figure grew at 10% per annum and Taiwan's figure remained flat, it would take over 15 more years for it to catch up.

Surprisingly, if you adjust for PPP, China's per capita GDP as a percentage of Taiwan's actually shrinks slightly; to about 1/5. And I don't believe China will catch-up here any earlier than for the nominal calculation. As I stated in my first post above, Taiwan has become significantly cheaper with all the deflationary pressure it has faced. China on the other hand is suffering typical inflationary forces of growth - wage inflation and asset price inflation compounded by an artificially constrained currency. The first tier cities in China are in many ways already more expensive than Taipei and the second tier cities are catching-up. The PPP adjustment factor as used by the IMF already favors Taiwan slightly and as time passes, it will likely favor it even more.

Just to put things into perspective, Japan's real economic growth has been nearly flat for two decades. Yet it is still a relatively very rich country. China on the other hand, has enjoyed explosive and largely uninterrupted growth during the same period. But it still has a high percentage of poor peasants with just a high school education or less. The massive wealth and education from the top are trickling down fast. But it will still take a lot more time to bring 100s of millions of peasants into the middle class.

Re-unification has largely been reduced to just a face issue at this stage in the game. Taiwan’s golden goose technology industry has moved the bulk of its capital, assets, and human resources to PRC soil. And as momopi has mentioned in several posts, a significant number of working age Taiwanese have re-located to the mainland and continue to do so. Taiwan’s economy has little expansion hope if it does not continue to integrate with the PRC’s. Whatever Taiwan has, China has it bigger, better, and/or cheaper. While Chen moved Taiwan in the direction of independence during his two terms, China quietly absorbed its most valuable resources – technology, capital, and the cream of its brainpower. The endgame for China may simply be to continue integrating and absorbing Taiwan Inc. as long as its ‘representatives’ play ball politically.

Overtaking Taiwan in:

PPP Per capita GDP and Income
Standard of living
Technological Innovation
Education
Engineering
Hi-Tech Gadgets
Mobile Phone systems

...and absorbing its brain trust as we speak.

With 12% yoy GDP growth the PRC will overtake the USA in 9 years, Taiwan is 24th to the PRC No. 2. I add in Chinese Taipei, HK and Macau to get the current PRC GDP of about 6.0 Trillion. All it will take is a few years more of 12% and then just excess growth to the USA annual GDP rate and China will be No. 1 very soon.

I think of Argentines during 2001-2003. They, more than other people, do NOT take well to poverty, homelessness and being thrust into 3rd World Status.

I believe that the USA will react even more poorly in this regard. Once you remove that 'We are No. 1!' claim from Americans, what will they have left? Without the ability to brag what do they have? A 1.2 Trillion dollar military? 13 Aircraft Battle Groups? Massive debt? A reserve currency?

Sure, the PRC could hit the wall like Japan, Inc. did in 1989.

But if they don't hit it very very soon, the USA will be an also ran by the end of Obama's 2nd term.

[Rock]

Overtaking Taiwan in:

PPP Per capita GDP and Income
My prediction is 15 years or more for the average to catch-up, see economic rational below
Standard of living
My prediction is 15 years or more for the average to catch-up, see economic rational below
Technological Innovation
Already happened in many fields, Taiwan is tiny, China is huge
Education
Depends on present and future government policies. Taiwan has a highly educated population, especially Taipei. But the education system here like in most Asian countries is lacking in many ways. It creates good technicians but poor innovators. Is China any different? I think its still worse
Engineering
Very broad topic. China pores massive amounts of money into world-class infrastructure. Has some of the largest projects in the world.
Hi-Tech Gadgets
You mean the production of this stuff or consumption? Ownership/Production is already mixed together (eg Foxconn which was founded and majority owned by Taiwanese but is based in China). If you mean consumption, its correlated with per capita GDP
Mobile Phone systems
Hard to compare, kind of like apples and oranges. Taiwan like Hong Kong and Singapore, is very densely populated so universal coverage is easy to achieve. PRC like USA has huge land mass with much lower population density and therefore is prone to low/no coverage areas. Its just much less cost effective to have a 100% coverage in a sparsely populated area.

...and absorbing its brain trust as we speak.
Yes, this has already happened to a large extent, especially if you include resident Taiwan passport holders

With 12% yoy GDP growth the PRC will overtake the USA in 9 years, Taiwan is 24th to the PRC No. 2. I add in Chinese Taipei, HK and Macau to get the current PRC GDP of about 6.0 Trillion. All it will take is a few years more of 12% and then just excess growth to the USA annual GDP rate and China will be No. 1 very soon.
You're very optimistic @12% average growth for the next 9 years. Do you realize that average economic growth in the PRC from 1990-2009 was only about 10% and that's from a tiny starting base. With the much larger current base and a slowing US/European economy which hits China's export sector hard, I believe 8% is more realistic. There will definitely be some slow years to bring down the average. The 10% figure I based my catch-up forecast on was purposely aggressive to give some benefit of doubt leeway.

I think of Argentines during 2001-2003. They, more than other people, do NOT take well to poverty, homelessness and being thrust into 3rd World Status.
Argentina achieved prosperity in the 90s by building-up massive foreign debt and artificially inflating its currency. Taiwan's population became rich through real economic activity and frugal financial management. If you recall the Asian Financial Crisis of 1998, Taiwan's economy was relatively unscathed thanks in large part to its extremely low foreign borrowing. Contrast to South Korea, Thailand, the Philippines, or even South Korea, all of which were heavily levered.

I believe that the USA will react even more poorly in this regard. Once you remove that 'We are No. 1!' claim from Americans, what will they have left? Without the ability to brag what do they have? A 1.2 Trillion dollar military? 13 Aircraft Battle Groups? Massive debt? A reserve currency?
History suggests that no empire will remain No. 1 for more than a few 100 years. If the USA falls behind, that's just par for the course. The Chinese all over the world have been saying for a long time now, "21st Century is Chinese People's Century". This is fine as long as you have the will and means to re-locate and adapt according the flow of world wealth and power

Sure, the PRC could hit the wall like Japan, Inc. did in 1989.
I doubt that will happen

But if they don't hit it very very soon, the USA will be an also ran by the end of Obama's 2nd term.
Its not necessarily a zero-sum game. The strong growth of the US economy post WWII did not make Europe poorer

[Repatriate]

Just to put things into perspective, Japan's real economic growth has been nearly flat for two decades. Yet it is still a relatively very rich country. China on the other hand, has enjoyed explosive and largely uninterrupted growth during the same period. But it still has a high percentage of poor peasants with just a high school education or less. The massive wealth and education from the top are trickling down fast. But it will still take a lot more time to bring 100s of millions of peasants into the middle class.

A few things about China that people should understand is that the peasant class (the majority) are undergoing a lifestyle change that's unprecedented. Despite what the western press says the quality of life _is_ still improving for the peasantry who have been wallowing in shit for the past 200 years. Probably the last time the peasants had it good was back before the early Qing (1700-1780s) dynasty. Literally anything is better than what they had before the PRC reforms. This is why drastic political reform or upheaval will never occur because they are fed and clothed. The '89 Tianamen crisis was from the educated middle class who is actively being appeased at the moment.

China's growth will most likely entail a stratified society with a large agrarian underclass who continues to farm the country's rice bowl. If you look at China's rice production it meets total consumption which is to say that a huge bulk of the poor agricultural farmers are an absolute necessity for China to feed itself. Even if the rural are "left behind" in the modernization race so to speak they will still be fulfilling a valuable role and I think overtime these inequities will address itself in a stable fashion.

I don't expect China to _ever_ get anywhere close to the gdp per capita of the developed regions of Asia simply because of this. From what i've seen and read it seems like a stratified society will be in China's future with a fast growing urban middle/upper middle class and an increasing super rich noveau rich class.

China's population and economic growth is just a giant experiment in so many ways. It's really unprecedented.

[globetrotter]

I think of Argentines during 2001-2003. They, more than other people, do NOT take well to poverty, homelessness and being thrust into 3rd World Status.
Argentina achieved prosperity in the 90s by building-up massive foreign debt and artificially inflating its currency. Taiwan's population became rich through real economic activity and frugal financial management. If you recall the Asian Financial Crisis of 1998, Taiwan's economy was relatively unscathed thanks in large part to its extremely low foreign borrowing. Contrast to South Korea, Thailand, the Philippines, or even South Korea, all of which were heavily levered.

I believe that the USA will react even more poorly in this regard. Once you remove that 'We are No. 1!' claim from Americans, what will they have left? Without the ability to brag what do they have? A 1.2 Trillion dollar military? 13 Aircraft Battle Groups? Massive debt? A reserve currency?
History suggests that no empire will remain No. 1 for more than a few 100 years. If the USA falls behind, that's just par for the course. The Chinese all over the world have been saying for a long time now, "21st Century is Chinese People's Century". This is fine as long as you have the will and means to re-locate and adapt according the flow of world wealth and power

Sure, the PRC could hit the wall like Japan, Inc. did in 1989.
I doubt that will happen

But if they don't hit it very very soon, the USA will be an also ran by the end of Obama's 2nd term.
Its not necessarily a zero-sum game. The strong growth of the US economy post WWII did not make Europe poorer

My point is that Americans WON'T LIKE IT when their empire becomes 2nd best or worse. So much of the psychological push in the USA for everyone to work themselves to death is that chant of 'We're Number One!'. Once you remove that, people will freak out. Americans don't know how to NOT be Number One -- that is my point. England grew richer after WWII but lost their empire, their status, their colonies, their reserve currency status, their very strong Sterling, and look at them now -- the young of Britain drink themselves blind each weekend and the young women are all cranking out babies living in council flats on the taxpayers nickel.

The UK is No. 15 or No. 19 on GDP PPP; they used to be Number One. I seriously doubt that the USA will decline as gracefully. Just look at the past 8 years for a hint.

[Repatriate]

The UK is No. 15 or No. 19 on GDP PPP; they used to be Number One. I seriously doubt that the USA will decline as gracefully. Just look at the past 8 years for a hint.

The difference between the U.K. and the U.S. is huge though. I can't think of anything England can do now that the developing and developed world can't do but the U.S. still has quite a strong comparative advantage when it comes to corporate branding, heavy industrial, and military tech. Not to mention that overall U.S. industry, infrastructure, and resources availability is still quite good.

Eisenhower was correct when he said that America had to beware that the industrial military complex would govern a lot of America's foreign policy. Look at who the biggest arm's traffickers in the world is..http://en.wikipedia.org/wiki/Arms_deali ... _exporters
Is that list any surprise?

There's a reason U.S. led foreign policy has this paranoid bent and why countries are always eager to exploit non-aligned political stalemates like the China/Taiwan, India/Pakistan, or S. Korea/N. Korea rift.

[Rock]

A few things about China that people should understand is that the peasant class (the majority) are undergoing a lifestyle change that's unprecedented. Despite what the western press says the quality of life _is_ still improving for the peasantry who have been wallowing in shit for the past 200 years. Probably the last time the peasants had it good was back before the early Qing (1700-1780s) dynasty. Literally anything is better than what they had before the PRC reforms. This is why drastic political reform or upheaval will never occur because they are fed and clothed. The '89 Tianamen crisis was from the educated middle class who is actively being appeased at the moment.

China's growth will most likely entail a stratified society with a large agrarian underclass who continues to farm the country's rice bowl. If you look at China's rice production it meets total consumption which is to say that a huge bulk of the poor agricultural farmers are an absolute necessity for China to feed itself. Even if the rural are "left behind" in the modernization race so to speak they will still be fulfilling a valuable role and I think overtime these inequities will address itself in a stable fashion.

I don't expect China to _ever_ get anywhere close to the gdp per capita of the developed regions of Asia simply because of this. From what i've seen and read it seems like a stratified society will be in China's future with a fast growing urban middle/upper middle class and an increasing super rich noveau rich class.

China's population and economic growth is just a giant experiment in so many ways. It's really unprecedented.

Great points on the so-called peasant class. Their standard of living and available economic opportunities (freedom to travel to work in rich areas, entrepreneurial projects at home) has clearly improved tremendously in several waves since Deng began his reforms.

I had the chance to travel around southern China as a kid in the 80s and people in the countryside lived like pigs. The biggest ticket item was a bicycle. TVs and refrigerators were for privileged city folk. Everyone got around by walking or bicycles. Shenzhen was still quite small but already full of construction activity.

Fast forward to the mid-90s - rural folk already have a better material life but still seem like they’re from another planet. Travel around a bit out of the city as a foreigner and you often got crowds of people intently watching you or individuals who just stare at you point blank with an open mouth. If you spend enough time there, you might see a lot of crazy stuff – a busy streets with a missing manhole covers, human road-kill laying by the side of major highways, a big truck making a sharp left and running its back wheels right over stopped motorcycles forcing the riders to jump off, shopkeeper physically attacking a customer for who knows what reason, constant spitting even inside restaurants, and other things which seem out of this world bizarre to people from other parts of the world. At this stage, Shenzhen is already a big complicated city full of factories and migrant workers and prostitutes from all over China.

Now consider the 2004-2005 period - I visited a few smaller cities – Zigong and Mianyang in Sichuan, Xingtai in Hebei, and Liuzhou in Guangxi and took a slow cross country train ride from Shanghai to Chengdu. This time, the small town/rural people I encountered appeared much more prosperous. They wore modern clothes, often had cellphones, were generally quiet and did not stare at me very much. Most of the younger ones I spoke with could communicate in Mandarin. Probably the most primitive looking Han people I observed during that period were the migrant infrastructure/construction workers in Chongqing. The smaller cities mentioned above all had a KFC and/or McDonalds but it was sometimes impossible find to Coca-Cola in stores and top hotels often had squat toilets in all the rooms. Oh and Shenzhen? It’s even larger but much more developed, organized, and modern.

The stratified society theory you put-out makes sense. For me personally, it’s very hard to imagine a full 1.3 billion PRC citizens achieving the same income and wealth levels as their Taiwan counterparts in 15 years. I believe the poorest 25% of Taiwanese will likely still, on average be wealthier than the poorest 50% or so of PRC citizens, even as far out as 2030. If this urban/rural wealth gap continues to persist as China develops, one of the government’s major challenges will be keeping well fed but left-out ‘have nots’ satisfied.

When economists make long term forecasts, they tend to use linear extrapolation which often fails to capture real world ‘tipping-point’ dynamics. The reality is, even Nobel prize geniuses don’t know what will materialize in 20 years and their views are often diametrically opposed to one another. Many things that happen are unprecedented. Just look at the US stock markets over the last 100 years and compare cycles. There are some similarities but even more differences.

Want an interesting bear case for China – Read Joe Studwell’s thoroughly researched “The China Dream� which calls for an eventual large scale economic crisis in China. But globetrotter seems to fall clearly into the Jim Rogers China bull camp. When I discuss the future with these types, I give a lot of ‘benefit of doubt’ room when throwing out projections. I’m not taking an opposing stance but rather poring a bit of cold water to moderate more extreme views.

[Rock]

My point is that Americans WON'T LIKE IT when their empire becomes 2nd best or worse. So much of the psychological push in the USA for everyone to work themselves to death is that chant of 'We're Number One!'. Once you remove that, people will freak out. Americans don't know how to NOT be Number One -- that is my point.

Too bad for ‘Americans’ then. Don’t know about you, but I can’t be bothered. I don’t plan on residing there, do you? And I resent having to pay taxes on worldwide investment income to support bailouts, prison populations, wars, various social services, and other deficit spending, none of which benefits me in the least.

Most of those Americans who are on top and in power will keep their wealth and control, no matter what happens. The US seems to be getting polarized with people either reaching affluence to rich status or falling into the over-fed poor class. The middle class is shrinking into oblivion.

A key component of the ‘US Inc. biz model’ is based on world control – through cheap and limitless credit via reserve currency status of USD and dominance of poorer nations and their resources through World Bank/IMF debt, CIA activities, and the world’s most powerful military. Read “Confessions of a Economic Hit Man�. China is one force which increasingly threatens ongoing US hegemony. I personally view this as positive change.

England grew richer after WWII but lost their empire, their status, their colonies, their reserve currency status, their very strong Sterling, and look at them now -- the young of Britain drink themselves blind each weekend and the young women are all cranking out babies living in council flats on the taxpayers nickel.

The UK is No. 15 or No. 19 on GDP PPP; they used to be Number One. I seriously doubt that the USA will decline as gracefully. Just look at the past 8 years for a hint.

The US GDP per capita currently ranks just 9 or nominally and 6 adjusting for PPP. We are already well below No. 1 using this metric.

[Repatriate]

The stratified society theory you put-out makes sense. For me personally, it’s very hard to imagine a full 1.3 billion PRC citizens achieving the same income and wealth levels as their Taiwan counterparts in 15 years. I believe the poorest 25% of Taiwanese will likely still, on average be wealthier than the poorest 50% or so of PRC citizens, even as far out as 2030. If this urban/rural wealth gap continues to persist as China develops, one of the government’s major challenges will be keeping well fed but left-out ‘have nots’ satisfied.

What you witnessed between the 80's up until the 00's are the consequences from decades of failed collectivist farming policy, stunted mental/cultural growth (cultural revolution), and traumatic events that wiped out numerous intellectuals and productive members of China's society. If you think about it Hong Kong, Taiwan, Singapore, and the rest of the overseas Chinese population who emigrated prior to the 1950's have the preserved traditional Chinese culture and weren't conditioned into uncouth slack-jawed yokels like the people that resulted from Mao's various social experiments. Unfortunately, this "backwards" image of China's population is what sticks internationally these days (including in the minds of overseas Chinese) and it'll be long while yet before they catch up.

I do give the current PRC credit in how they have kept most of the rural population relatively satisfied though. One reason behind is that they wisely decided to create mini autonomous regions in the rural parts of China. This means the people have relative freedom to elect their own political authorities and implement their own city level policies. This was done to avoid the massive disasters from collectivist policies and to avert various local-political clashes that would have taken place from inserting party officials from thousands of miles away.
Another reason why the rural people don't demand more is simply because they don't see a need to when their immediate needs are being met. I only see problems developing if the real unemployment rate skyrockets in the rural areas to the point where there is a noticeable regression in quality of life.

My views of China are probably similar to yours. I keep an optimistic but moderate stance when it comes to China. I've read quite a few of the bear and bull arguments and it seems to me that there is too much political and economic vested interested either way to get a clear picture unless a person is at the domestic level observing the situation.

[Rock]

What you witnessed between the 80's up until the 00's are the consequences from decades of failed collectivist farming policy, stunted mental/cultural growth (cultural revolution), and traumatic events that wiped out numerous intellectuals and productive members of China's society. If you think about it Hong Kong, Taiwan, Singapore, and the rest of the overseas Chinese population who emigrated prior to the 1950's have the preserved traditional Chinese culture and weren't conditioned into uncouth slack-jawed yokels like the people that resulted from Mao's various social experiments. Unfortunately, this "backwards" image of China's population is what sticks internationally these days (including in the minds of overseas Chinese) and it'll be long while yet before they catch up.

Yea, Mao did a real number on China and the Chinese Communist Party. He and Stalin must have made some sort of pact with the devil. His ideology and social projects were contagious too. Pol Pot’s ‘experiment’ in Cambodia from 75-79 was inspired both by the ‘Great Leap Forward’ and ‘Cultural Revolution’ and managed to wipe out an estimated 25% of the country’s population and virtually all the elite (educated, wealthy, professional, civil servants).

My views of China are probably similar to yours. I keep an optimistic but moderate stance when it comes to China. I've read quite a few of the bear and bull arguments and it seems to me that there is too much political and economic vested interested either way to get a clear picture unless a person is at the domestic level observing the situation.

I’m a realist. I don’t know for sure what will happen in the future and I’m conscious of that. But based on my experience and gut instinct, I can rule out scenarios as highly unlikely to virtually impossible.

Long term nominal economic growth of 10% for a very large population is extremely rare unless it starts from an abnormally low base or is accompanied by very high inflation. Sometimes new technologies or markets lead us to think otherwise (eg Internet boom, China fever, steam engine, etc., etc., etc). But these new opportunities play-out within a decade or two and growth rates fall back down to longer term trend levels.

I will also add, the slower China grows and develops, the better it will probably be for us “Happier Abroad� types who seek inefficient social markets. People forget that cheap countries get a lot more expensive as they develop. And sometimes, they change dramatically in a few years. Rio was a cheap destination in 2003 but by 2008, it was as expensive as Paris.

I do my best to avoid biased sources of information. I like reading accounts from on-the-ground intellectuals who attempt to be objective. Like Winston, I give little credence to most mainstream media and at this stage with Youtube, ebooks, and other valuable sources available, rarely waste my time with them. Sometimes I indulge a bit for entertainment purposes though.