Why China’s prosperity may be a mirage

Let me disabuse you

The American Enterprise Institute’s Derek Scissors, author of the China Global Investment Tracker, uses estimates of the country’s private (i.e. household) wealth to throw cold water on the idea of China as an economic superpower:

There are data, grounded in real-world calculations, that show China’s economic importance falling — not rising slowly, nor staying stable, but falling. The most important indicator is net private wealth, which is the single best measure of a country’s economic size and of the pool of resources available to its public sector for military or social spending.

In work dating back to 2000 and carried out with no geo-economic agenda, Credit Suisse has estimated private wealth. The new estimates, through the middle of 2016, show American private wealth at $84.8 trillion and Chinese private wealth at $23.4 trillion. Moreover, the gap is widening. With $60 trillion less in private wealth than the United States, China’s global economic leadership is a fable.

Private wealth is a more accurate measure of national prosperity than GDP, which measures activity only (including totally wasteful activity). Credit Suisse’s estimates for each country are probably off by at least a trillion dollars, but the broad strokes are clear. Counting public-sector assets (where China’s giant state-owned enterprises give it an advantage), Scissors reckons US net wealth to be $74.3 trillion vs. $27.4 trillion for China, a gap of nearly $47 trillion.

China’s global economic “leadership” may actually have peaked in 2009-2013.

Popular perception begins to go wrong at the beginning of this decade. America’s global wealth share hit a low of 26.9 percent at the end of 2009. It has since outpaced the increase in China’s global share. The key event was when growth in the PRC’s share stalled at the end of 2013. For at least a decade prior to 2010, China outran the United States. For the past six years, the United States has matched China in wealth growth, and for the past three years, the United States has outpaced it.

My observation is that the few years from 2008 (the start of the global financial crisis) was the era of maximum triumphalism/panic about China’s rise, a narrative that has since been replaced by concerns about China’s mounting economic problems. This is a case where the conventional wisdom may just be aligned with objective reality.

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