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The Economist reports that China will become the world's largest economy by the end of the year.

But this moment in history is not the end of American dominance. If anything it is a beginning.

Being big is not reason to brag, or a necessary source of power - especially if beset by crisis and troubles and constant fires to put out at home.

"China will become the world's largest economy by the end of the year," The Economist reports.

(click to enlarge)

UNTIL 1890 China was the world's largest economy, before America surpassed it. By the end of 2014 China is on track to reclaim its crown. Comparing economic output is tricky: exchange rates get in the way. Simply converting GDP from renminbi to dollars at market rates may not reflect the true cost of living. Bread and beer may be cheaper in one country than another, for example. To account for these differences, economists make adjustments based on a comparable basket of goods and services across the globe, so-called purchasing-power parity (PPP). New data released on April 30th from the International Comparison Programme, a part of the UN, calculated the cost of living in 199 countries in 2011. On this basis, China's PPP exchange rate is now higher than economists had previously estimated using data from the previous survey in 2005: a whopping 20% higher. So China, which had been forecast to overtake America in 2019 by the IMF, will be crowned the world's pre-eminent country by the end of this year according to The Economist's calculations. The American Century ends, and the Pacific Century begins.

- The Economist, Crowning The Dragon

We were fine until that last line, at which point we started laughing: "The American Century Ends, and the Pacific Century begins."

Seriously? We call B.S. on that.

This moment in history is not the end of American dominance. If anything it is a beginning. In terms of dominance, America has barely rolled up its sleeves.

Nobody has a crystal ball, and nobody knows for certain how the future will play out. But with that said, we have odds and probabilities and the lessons of history at hand. And as such, we can say pretty strongly: The 21st century will NOT be China's. If anything the 21st century will belong - again - to the United States.

Let us remember that America is:

  • the richest nation in the history of the world
  • the single nation responsible for roughly a quarter of global GDP
  • an agricultural superpower (only the EU exports more grain, and they aren't a country)
  • a technology / innovation / intellectual property superpower
  • an entrepreneurial superpower
  • a military superpower (with control of two oceans)
  • an energy superpower (thanks to the shale boom)
  • a real estate superpower (more high-dollar real estate than anywhere else)
  • a demographic superpower (deeply favorable age mix vs. Europe and China)
  • home to the wealthiest, most innovative companies in the world (whose revenues are taxable)
  • home to +70 trillion in household wealth
  • home to literally hundreds of trillions in natural resource assets and physical capital assets
  • home to the world's reserve currency which still accounts for 90%+ (!) of global transactions

Surely some stuff has been left out there…the broader point, though, is that America has barely begun to feel its strengths. For more on this perspective read our book review of "The Next Decade" by George Friedman.

Friedman thinks that, far from bestriding the 21st century like a colossus, China will actually become a relative backwater - too beset by managing internal problems to do much on the world stage - and that America is only in the "adolescent" stage of feeling its power. This could make things very challenging for long-term investors in the China Large Cap Index (NYSEARCA:FXI).

Friedman could be wrong, but we more or less agree that this is the way to bet. If anyone has claim on "the 21st century," it remains the United States. And for those inclined to comparing the American empire to the Roman empire or the British empire - remember how long those empires lasted. For the comparison to be accurate in rough historical development terms, we would have at least a hundred years to go (if not more) before hitting our zenith…

(The idea that the US is "broke", by the way, is put forth by debt-obsessed Cassandras who either can't read a balance sheet or refuse to. America is no more "broke" than Bill Gates could be called broke for keeping minimal assets in his day-to-day checking account. Many individual Americans are broke as a joke, but the country itself is richer than Croesus, and the collective burden of our national debt, in the long run, is comparably less than a mid-sized car payment.)

We do not mention all this because we are hyper-patriotic rah-rah USA types (though we do count ourselves glad to be American). Instead we are just looking at sober facts in light of the "big prediction" that China's economy will outgrow the United States' in PPP terms. In the true "big scheme of things," this doesn't matter much at all. Being big is not reason to brag, or a necessary source of power, if you are beset by crisis and troubles and constant fires to put out at home.

This chart tweeted by Graeme Wearden (hat tip PragCap) also lends perspective:

(click to enlarge)

So, yeah. China taking back a crown it lost in 1890, on a purchasing power parity basis, is an interesting and intriguing stat.

But it sure as heck doesn't tell you who the "21st century" will belong to. Nor does it give a clear picture of who is winning the game and why (to the extent there is a game in the first place).

Make no mistake, America is heading into the 21st century with massive, massive net advantages…and thus far those advantages are not truly threatened in the least.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.