As The West Frets Over Politics, China And India Leading World Economy
As Americans and Europeans sling poison arrows at each other day in and day out over who has the best politicians (answer: no one), China and India go on their merry way running the world.
That’s right. When world GDP grows 3.4% or so this year, 75% of it would have come from China and India. And while India is still vastly poorer than China and doesn’t quite have the multinational muscle, Chinese corporate giants and their new billionaire entrepreneurial class are building the next global leaders that will compete and maybe beat John Deere, Caterpillar, Samsung, Dell, Hewlett Packard, Cisco, Tesla… Each year, the list gets longer. Cisco might not be beat by Huawei in the United States, but Huawei is making inroads in Latin America. They certainly are doing so in Asia, where everybody lives.
The financial capitals of the world are still London and New York, but Shanghai will likely replace Tokyo soon, if it hasn’t already. More importantly, the rise of China and India means that corporate capital is more in tune with them…than us.
“The central theme of international politics…is the steadily eroding power of the West,” says Gideon Rachman, Financial Times chief foreign affairs commentator and author of the new book Easternization: Asia’s Rise and America’s Decline from Obama to Trump. “This erosion is closely linked to the growing concentration of wealth in Asia, and in particular the rise of China.”
Gideon argues that, like the U.K. referendum to leave the European Union due to concerns over low income migrants from the Muslim countries, Trump’s promise to “Make America Great Again” is a promise to bring the U.S. back to its halycon days when it was the richest and most relevant economic power in the world. The U.S. is still the richest and most relevant economic power in the world, but China is rising. In fact, it makes little sense for the U.S. to start a trade war with China given the role that country could play in foreign direct investment capital here at home.
The speed of transformation in India and China has taken Western opinion makers off guard. India is rarely mentioned. Within the business and investing world, India is mainly known — for better or for worse — as an IT juggernaut with the five biggest Indian IT firms hiring tens of thousands of Indian software engineers each year on H1-B immigration visas. If you listen to Silicon Valley for five minutes, the message is that Palo Alto wouldn’t survive if not for Indian brain power.
China is seen in a negative light more than in a positive one, but it is becoming an important source of capital for real estate development and even Hollywood.
The Chinese economy continues to grow even as growth is not what it once was a decade ago. China was just 6% of the U.S. economy in 1990. It was 80% by 2012, according to a University of British Colombia study by economist Yves Tiberghien. We have all heard about China overtaking the GDP of old Western powers with much tinier populations, namely France, Germany and the U.K. China has them beat since 2006.
As this occurs, the U.S. is rethinking trade deals with China and the rest of the world. Europe is rethinking the very existence of the European Union. Looked at broadly, the West is facing its worst political crisis in a generation. To some, it is a cleansing. To others, it is the Apocalypse. To China, it is a Godsend.
Chinese Premier Li Kequiang, at the close of annual National People’s Congress yesterday, said that China did not want a trade war with the U.S. and he noted that Chinese bilateral trade and investment created nearly one million jobs in the U.S. last year.
But, even as pundits declare the West is lost, the U.S. still has some mighty tricks up its sleeve. For starters, IMF chief Christine Lagarde says that the improved outlook of the global economy partly reflects a projected pick-up in advanced economy activity helped by expectations of more expansionary fiscal policy in the U.S. even though the bulk of that might not materialize until 2018. For the Western world, the U.S. economy is No. 1.
There’s also China’s Achilles heel: demographics. Demographics in India are far more favorable. The same holds for the U.S., says Advisor Revolution strategist Michael Williams.
“We are still expecting an economic boom in the U.S. because of demographics,” he says about the Millennial generation. “Boomers helped drive the market from 1,000 points in 1975 to over 10,000. China doesn’t have that tailwind, but we do.”