No Moss

The Renminbi as a Reserve Currency (Part 1)

China has a huge population (900 million) that is living at little above the subsistence level. It has been politically stable for a little more than three decades, and I use the term stable loosely. At the local government level, the Communist Party is horrendously corrupt and unpopular. It's currency is not convertible, and it is doubtful that the financial infrastructure exists to make it so. China has yet to make significant investments in human capital, i.e., education, health care, and a viable retirement system. It is living off the Mao population boom, exploiting the cheap labor that that generation produced. Rising expectations and a declining population will reduce the competitive advantage of what is now a serf-level labor force.

We in the industrialized world have made China the workshop of the world. But China has made a bargain with the devil, that is, they have taken on the risk of labor market volatility. Because their production is largely OEM (that is, they only manufacture goods, they don't design or market them), there are relatively few jobs for the millions of new college grads. In any case, those new college grads can't compete with graduates of American or European universities. The idea that there is anything in China approaching an MIT or a Stanford is laughable.

Finally, China is burdened with an antique language that only about 50-60% of its population has mastered. Just learning the characters for the language absorbs years of the educational process.

I'd give China a few more years before they're ready to rule the world.