Foreword by Yang Yongxin



Introduction by Frank-Jürgen Richter

Part One: China as the World’s Leading Producing, Exporting, and Financial Power: To What Extent, Where, and Why?

Chapter 1: GDP: Toward the U.S.-China Duopoly


Chapter 2: Manufacturing Output: China Is Already the Number One


Chapter 3: Merchandise Exports: From China’s Lead to China’s Dominance?

Chapter 4: Where China Is Leading and Where It Is Not

Group One Industries: China Is the Top Producer and the Top Exporter

Group Two Industries: China Is the Top Producer, but Not the Top Exporter

Group Three Industries: China Is Neither the Top Producer Nor a Major Exporter

Key Features of China’s Manufacturing Lead

Anatomy of China’s Merchandise Trade Surplus

Net Exporter and Net Importer Sectors

Domestic Private Companies Have Become the Major Surplus Creators


Chapter 5: Chinese Domestic Manufacturers versus Western Manufacturers

The Four Segments Analytical Framework

Chinese Manufacturers’ Global Offensive: Four Stages

Western Manufacturers: A New Way of Thinking Is Required

Option One: Stay at Home and Differentiate the Product

Option Two: Move to China

Western Governments Have to Initiate an Export Counteroffensive

Chapter 6: A Big Battle for the Chinese Market

China-Bound Exports of Capital Goods: East Asia Is Leading

China-Bound Exports of Consumer Goods: Opportunities Are There, but You Have to Work Hard Not to Miss Them

China Trap

At-Home Chinese Companies Are Active in the High-End Niche

Competition with Domestic Capital Goods Makers Is Getting Really Tough

Chapter 7: Global Services Market: The West’s Edge and China as Number Five

China Joins the Ranks of Leading Services Exporters, but the United States Is Far Ahead

China’s Trade Deficit

China Has a Structural Weakness in Services That Is Difficult to Overcome

The U.S. and EU Surpluses in the Services Trade with China Are Meager

The Right Time to Capture the Chinese Market


Chapter 8: Is China a New Financial Superpower?

China’s Overseas Assets

$3 Trillion-Plus Foreign Reserves: Implications for China and for the West

China Has Become the Largest International Lender for Developing Countries

China’s Outbound Foreign Investment: Accelerating, but the Lag Remains

Chinese Households’ Financial Assets: Still Tiny

Is China a New Financial Superpower? Yes and No


Part Two: The Global Downturn and Beyond: Western Capitalism and Chinese Capitalism

Chapter 9: The Global Crisis Was Not Really Global

Chapter 10: Western Crisis: Three Major Factors

Unaffordable Consumption and Households Deeper in Debt

Gambling Capitalism

The Failure of State Regulation, Corporate Governance, and Business Morality

Chapter 11: Still, Western Capitalism Is Alive, But. . . .

Calm Down: No End of Capitalism

Soaring Public Debts as the Biggest Crocodile

The Welfare State Has to Be Trimmed More and Faster

Chapter 12: Is China Structurally Stronger Than the West?

Improvement of Lending Practices and Persistent Fight with Overheating

Enhancing Regulatory Standards for Banks

Healthy Public Finance

Chapter 13: The Chinese Model of Capitalism

The Need for a New Conceptual Framework

The Chinese System Is Not State Capitalism: A Great Shift to Private Property

Creating Market-Style State-Owned Companies

Fierce Competition and the Culture of Self-Responsibility

Chinese Capitalism: Definition

A Digression about China’s Structural Weaknesses and Political Evolution

Chapter 14: Global Rebalancing Will Not Be Easy

Can the Idea Work?

Private Consumption in China Is Already Growing Fast

Yet Expansion of China’s Domestic Demand Is One Thing, and Rebalancing Is Another

Too Rapid Increase of China’s Consumption May Have Dire Side Effects

Present Position: Imbalance or Equilibrium?


Part Three: The China-West Economic Wars: And the Winner Is. . . .

Chapter 15: China’s Choice Is to Further Expand Trade Surpluses and Keep the Yuan Weak

The Rationale for Not Appreciating the Yuan Faster

The Rationale for Increasing Savings and Exports Rather than Consumption

Chapter 16: Environment: China Going Its Own Way

Global Climate Talks: Doubts Remain If Not Increase

Concern about the Impact on Growth

A Wider Angle Is Needed

China’s Pro-Environmental Drive

China-West Environmental Cooperation

China As a New World Leader in Green Business?

Chapter 17: A Fight for Natural Resources: China Sets New Rules of the Game

Changes in the Global Markets

Chinese Model of Tapping Resources

African Saga

He Acts While Other Men Just Talk

China Has Become a Major Source of Development Aid

Chapter 18: Indigenous Innovation: Seeking to Command Advanced Technologies by All Means

The West is Creating China as a New Technological Superpower

Soaring Foreign Investment in R&D Centers and Production Upgrading

China’s Technological Strategy

Technology Transfer Enforcement

Chapter 19: Company Acquisitions: Chinese Are More Active than Westerners

Acquisitions Asymmetry

The Chinese Government Is Tightening Regulations

Western Governments Are Blocking Chinese Acquisitions of Technology and Resource Firms

Chinese Acquirers Are Backed by the State

Conclusion: The West Needs a Cohesive China Policy and Unconventional Responses to China-Posed Challenges

Epilogue: China, the West, and the World


About the Author



To Maxim and Olga


My good friend Ivan Tselichtchev is an internationally renowned economist and scholar who enjoys great respect and a good reputation as a researcher, especially in the area of world economics and business. The author of the masterpiece Asia’s Turning Point, Tselichtchev has taken a new step with China versus the West, a book presenting a comprehensive and accurate look at the subtle changes in the balance of power between emerging economies like China and the developed Western economies of the United States, Europe, and Japan.

In this new multilevel competitive world, global economic growth is driven by the emerging entities, rather than Western economies.

Through Tselichtchev’s precise analysis, the reader sees the areas in which China has been leading the world or catching up with the developed states, as well as the areas where the traditional West still maintains its advantage and is likely to further strengthen its position. Along with articulating many valuable suggestions and ideas, Tselichtchev vividly shows how wise government policies and business strategies are needed to address the fundamental changes in the global economic environment. He articulates a unique series of proposals to and options for Western business communities on how to deal with China’s emergence as a leading manufacturer and exporter.

This book offers systematic, unique, incisive, and thought-provoking analysis of the various factors that led to the global economic crisis of 2008–2009 and provides a deep insight into the impact of the crisis on the balance of economic power between China and the West, with their different institutional structures. Tselichtchev finds strong arguments to vividly illustrate how the structural dimension of the Western economic crisis dramatically shifted the balance of power in China’s favor, vividly showing that China proved to be stronger both structurally and macroeconomically than most Western countries. This helps readers to rethink the essence of the Chinese model and define it in a new way. The author also brings to light China’s problems, weaknesses, and prospects for political development.

Tselichtchev’s book provides a very human and in-depth analysis and discussion of the complex issues as he shares his Chinese impressions and experiences, and summarizes the trends and changes in the Western economies impacted by their business relations with China. The author provides unique suggestions and convincing arguments from different perspectives, addressing the key issues. He shows the uniqueness of China’s role in the global economic history and the essence of its status in today’s multipolar global system where no country alone can “dominate the world.” From now on, a vigorous and open China is creating a historic opportunity for the West.

For all those who want to learn more about the current economic developments and economic structures of China and the West, and about the world economy as a whole, as well for those who are searching for their place and role in this world, this book is a must. In particular, it is a valuable resource for policy makers, businesspeople, and experts and scholars in the economic fields, as well as for educational institutions and for mass media people.

Ivan Tselichtchev’s extensive international experience, combined with his great writing ability, makes for a spectacular read.

Yang Yongxin


Senior Advisor, China Chemical Energy Saving Committee

Council Member, Shanghai Economic Management Consulting Association

Executive Director, China Hao Hua Plastics City

Chairman, Haobo International Logistics Management Committee, Shanghai


China’s emergence as a new superpower and an undisputed economic leader of the non-Western world is one of the most important global developments of the early twenty-first century.

There are many books and articles on China’s rise. Their authors have vividly shown its remarkable scale and breathtaking speed. In this regard, perhaps, there is nothing left to argue about.

Our book is not about China’s rise. We will not even use the term.

It is time to make a step forward. The purpose of this book is to present a comprehensive picture of the economic power balance between China and the West in today’s world, to show how and why it has been changing over time, especially since the beginning of the new century, and, where possible, to articulate the directions of change expected in this decade and beyond.

Both China and the West are our main heroes. Other heroes, especially a cohort of large emerging market countries starting from India, are also present.

The term West is not geographical: It includes all old industrially developed economies: North America, Western Europe, Japan, Australia, and New Zealand (the new industrially developed economies are four Asian tigers: Singapore, Hong Kong, South Korea, and Taiwan). In this book, due to inevitable space constraints, the Western part of the analysis is concentrated mostly on the United States, Japan, Germany, France, the United Kingdom, and Italy.

In Part One we explore the West-China balance of power in manufacturing production, merchandise trade, commercial services, and finance. There is an endless torrent of information about China’s rushing ahead and occupying top positions in one sector of the global economy after another. Our aim is to let readers clearly see in what particular areas and product segments China has increased its power significantly and is now leading, in what areas and segments it is rapidly catching up, and the areas where, in spite of China’s progress, the West retains superiority and has a chance to enhance it further.

In particular, we explore how China widens the scope of its merchandise export offensive and what options this offensive leaves for Western manufacturers.

We argue that the West, both businesses and governments, is not doing enough to take advantage of the business opportunities provided by China’s growth, especially regarding China-bound exports of both goods and services. A big battle for the Chinese market is just starting, and the Western side has to move fast not to be left out.

The global economic and financial crisis of 2008–2009 exerted enormous influence on the balance of power in the world economy, making China, in relative terms, much stronger and weakening the West. This is the major theme of Part Two. We argue that the crisis was not global but Western, and manifested a failure (though, of course, not the end) of the Western, first of all the American (or Anglo-Saxon) model of capitalism. We define the major dimensions and reasons for the failure, the latter starting from unsustainable consumption patterns and ending with the inability to contain potentially disruptive financial transactions. In our view, the problem was also Western capitalism’s moral failure.

Now that the crisis is over, major Western economies are changing a lot to address the issues it posed. Yet, unfortunately, they will be suffering from the crisis aftershocks for years to come—exacerbating public debts and worsening employment conditions being a clear warning. The point we are making is that the crisis resulted from the structural weaknesses of Western capitalism, while China’s resilience was rooted in its structural strength, which is now providing a springboard for further growth.

This assumption naturally brings us to investigate the Chinese model of capitalism and to compare it with the Western one in broader terms. We propose a new definition of Chinese capitalism. In our view, it is not Western capitalism’s opposite. We trace its evolution toward more markets, competition, and freedom for enterprises, state-owned companies included. On the other hand, we argue that the Chinese state not only actively supports domestic enterprises and industries, but also plays the role of a demanding company owner and a tough supervisor, resolutely containing financial risks.

Can China lead global growth in the 2010s through the expansion of its domestic market, in line with a currently popular concept of global rebalancing? This is one more hot issue to be discussed in depth.

Part Three looks at five major areas where the West’s and China’s economic interests clash: trade and the exchange rate of the yuan, environment, natural resources, technologies, and company acquisitions. Tracing and analyzing the major developments, we arrive at the conclusion that in most of those areas China is on the offensive and that more often than not it succeeds in making things change in the directions it wants them to. We try to explain the reasons and to explore various options for the West’s response.

In short, in this book we try to diagnose the West-China economic power shift, answering the four key questions: In what areas? How big and how fast? Why? and What to do?

We also kindly ask the reader not to skip the “Epilogue: China, the West, and the World” where we discuss the global context and global implications of the West-China economic power shift and articulate a number of key conclusions. We show why, in spite of its dramatic rise, China will not become a world ruler and there will be no new Pax Sinica.

We did our best to make the book lively and reader-friendly, selecting really interesting and important facts and storylines. It contains many specific examples, which, we hope, will make it easier to understand and to feel both Western and Chinese realities. Some of them reflect our own on-the-spot experiences. We have also added to it a little bit of Japanese flavor, because Japan is the country where we have been living for more than 20 years and a very good and relevant place to research many of the issues we raise.

We hope that China versus the West will be useful and pleasant reading for everyone seeking to understand the major global developments of our time, including businesspeople and policy makers, scholars, analysts and journalists, professors, and university or business school students.


This book will see the world thanks to cooperation and support from many colleagues and friends.

Frank-Jurgen Richter, chairman of Horasis and the host of Global China Business Meetings, provided valuable intellectual input and much assistance in my research in Europe, offering a wonderful opportunity to participate in Horasis projects.

In Asia, I am always happy to work at INSEAD, Singapore. I am grateful to Professors Hellmut Schutte and Michael Witt, as well as the Tanoto Library staff who provided such opportunities.

Here in Japan, I am especially grateful to Mr. Shin’ichi Suzuki, president of the Ad Post Company, and a person with remarkable experience in regard to working in China, for supporting and encouraging my research and writing activities and providing invaluable advice.

Ken’ichi Imai, a Senior Fellow Emeritus of the Stanford University and Professor Emeritus of the Hitotsubashi University, has been one of the most important economists in Japan and beyond, since the start of my modest career. His writings and all our discussions provided a unique intellectual stimulus.

I’d like to say thank you to the Chuo University and especially to Professor Kenji Takita for inviting me to take part in research projects and international conferences on Asia that helped to solidify the concept of this book.

Many thanks for sharing thoughts and encouraging me to write on Asian and global issues to my old friend Hideaki Yamakawa, currently professor at the Kanazawa Gakuin University.

I always learn from Mr. Keisuke Uemura, president of the ITAC company, the R&D arm of Nagata Seiki, a leading player among Japanese producers and developers of new materials.

I am grateful to many other Japanese colleagues and friends in Tokyo, Niigata, and beyond who shared their views and encouraged my research effort.

A very important person for me, be it in Japan, Belgium, or anywhere else, is Philippe Debroux, professor at the Soka University and my co-author for my previous book, Asia’s Turning Point. He is a wise man with deep knowledge, rich professional experience, and a beautiful sense of humor. Some parts of the book were written under the impetus of our lively discussions.

I value all the contacts, discussions, and debates I have had with Chinese scholars, businesspeople, managers of state-owned companies, journalists, and politicians I met during my China trips, here in Japan, and at the Global China Business Meetings and other international gatherings.

Thank-you, Yang Yongxin—a major manager in Shanghai, the largest industrial center in the world.

Thank-you, my friend, Yuan Pei Zhe.

And now, back to Russia—with love. Special thanks to Alexander Drozdov, the director of the Eltzin Fund and a very good journalist, for showing strong interest in my research concepts and plans, sharing his ideas, and encouraging my international research activities.

Wherever I am, I will be an “IMEMO man.” IMEMO is the Russian abbreviation for the Institute of World Economy and Economic Relations of the Russian Academy of Sciences, where I started my career as a researcher.

I am grateful to academician Evgeny Primakov, the prime minister of Russia in the late 1990s, who played a very important role in setting the direction for my professional activities in the mid-1980s, when they were still at an early stage.

Thank you, my old colleagues and friends: director Alexander Dynkin, Vyacheslav Amirov, and Sergey Chughrov, who is now the editor-in-chief of Political Studies magazine in Moscow. Gratitude and special tribute also go to the late Vladlen Martynov and Yakov Pevzner. Apologies to many other colleagues and friends whose names cannot be mentioned due to space constraints.

Finally, last but not least, I thank my son Maxim Tselichtchev, for providing assorted kinds of technical and information support.


Globalization has entered a critical stage, as the ongoing economic disruptions have prompted many of us to reexamine its promises. The world today is characterized by pronounced fragility and heightened uncertainty, fed by external shocks and multiple crises that are dangerously reinforcing. Against the backdrop of these unprecedented challenges we are witnessing an economic and geopolitical power shift from the developed to the emerging world.

By 2030, most of the world’s largest economies will be non-Western and more than half of the world’s 1,000 largest corporations will have their origins in the emerging countries. This will directly impact the way globalization works. As emerging economies rewrite the rules of globalization, the West is overtly advocating more protectionism.

One of the main criticisms made of globalization by its detractors has been that it is Western-driven and Western-centric—in other words, that the West calls the shots and that most benefits go to Western players. Yet, as globalization was gathering momentum, it assumed new and striking features that ran contrary to that Western-focused characterization.

Non-Western players started to emerge as vital sources of energy and initiative in globalization; they have become its new engines, and their companies are strengthening their global positions at an unprecedented pace.

China is the leader of the emerging world.

In the year 2010, its share of the global manufacturing exports reached 13.7 percent, up from 12.1 percent in 2009. The trend is likely to persist in this decade. Eventually, China will reach a point at which mounting labor costs trigger declining shares in low-end exports, offsetting gains in the mid and high-end value segments. But we are not there yet. China’s goods are more high-end than before, but it is still predominantly a labor-intensive, low-end export power, excelling in production of commodities such as clothing, textiles, footwear, and toys.

However, the future of exports from China will be led by equipment manufacturers, and, although they may not be penetrating Western markets, competition in third markets is intensifying. The greatest shock that might face European and U.S. manufacturers is the full-scale export of Chinese manufacturing capability similar to that of the Japanese entry into the U.S. and European markets several decades ago.

China wishes to establish its global image as that of a benign power in many sectors, but it will not be perceived as mature if it doles out money to spent causes. It bought into the U.S. debt, perhaps fueling too much credit and inflaming U.S. purchase of cheap Chinese-made goods. It will have learned that hard lesson, and now Europe has to behave in a more relevant way than the old United States did in order to be creditworthy in China’s eyes. That seems fair.

China versus the West—a new book by Ivan Tselichtchev, a leading expert, scholar, and writer on international economy, business, and politics—is very timely and unique. It is an innovative book, innovative for several reasons.

First, the author has found his unique angle. The book provides a deep insight into this new globalization stage I mentioned at the beginning, vividly depicting its major characteristics. Its focus is the economic power balance between China, a new emerging market superpower, and the developed West, and the way this balance is changing. It is essentially the first book presenting a comprehensive picture of the economic power balance between the two, based on the analysis of a remarkably wide range of carefully selected data. The author avoids simplified assumptions about China’s rise and the West’s fall (perhaps this topic is already somewhat overdone), analyzing the issues in all their complexity and presenting conclusions resulting from thorough research.

Starting from an in-depth analysis of the power balance in particular fields—manufacturing production, merchandise exports, services, and finance—Tselichtchev moves on to investigate tectonic changes in the global arena, spurred by the financial and economic crisis of 2008 and 2009. His crucial point is that in the wake of the crisis and in its aftermath China has proved to be structurally and macroeconomically stronger that most Western countries. This brings him to a new definition of the Chinese model of capitalism per se. Finally, he puts together a series of exciting stories about the China-West rivalry (“economic wars”) in particular fields: trade/currency, environment, natural resources, technologies, and company acquisitions.

Second, the book resolutely rises against stereotypes and clichés, making us reconsider many key assumptions. Indeed, China is already not only a world factory, but also a world research lab and a leader in green business. There is a lot of talk about the Chinese economy’s overheating and asset bubble risks, but it is exactly China that has been most successful in containing the bubble already for three decades of uninterrupted growth, and exactly the West that was incapable of stopping devastating waves of financial speculation. China’s long-term uninterrupted growth itself is a unique phenomenon in the history of market economies, and has to be properly assessed and explained. There are concerns about China’s facing a threat of political turmoil stemming from the people’s impatience with the one-party rule, or social turmoil due to expanding income gaps. However, though critical of many aspects of China’s domestic and foreign policy, the author argues that apparently there is still a lot of room for further political evolution within the framework of the one-party dominance, and that income gaps in China are of a less socially explosive character because low-income families’ incomes and living standards are also rising fast.

Third, the book contains many valuable proposals and ideas both for policy makers and for businesspeople. For instance, it presents in a systematic way strategic options for Western manufacturers in the wake of China’s production/export offensive and proposes scenarios for West-China interaction on global environmental issues. Being imaginative, the author avoids building castles made of sand. He is searching for solutions that are feasible and realistic.

Fourth, it is a book written in a unique genre. There is a lot of valuable and thorough academic research. However, it is presented as an informal conversation with the reader, in language easy to understand for a very wide audience; it may often be perceived almost like a novel with its own drama and a breathtaking plot. It is full of passion and emotional power almost unexpected from a book on the economy and business. It conveys the spirit of our time, its nerve, its complexity, its conflicts, and sometimes even its tragedy. Still, you will also have moments of intellectual relaxation while reading several passages sparkling with charming humor.

After all, the book ends on an optimistic note. There should be “more China” in our (Westerners’) lives, so that more and more of us could discover their “China opportunity.”

Enjoy reading.

Frank-Jürgen Richter

Chairman, Horasis—The Global Visions Community

Host of Global China Business Meetings,

Global India Business Meetings,

Global Russia Business Meetings, and

Global Arab Business Meetings (

Part One


At the start of the second decade of the twenty-first century, the picture looks like this: Manufacturing industries where China is not leading the world in production volumes have become an exception. China is an undisputed leader in export volumes of electrical/electronic products and light industry goods. Its presence in other merchandise export markets is much smaller. Having joined the ranks of important exporters of services, it still remains far behind the United States and other leading services nations—services are not its strong point. The Chinese state is emerging as effectively the world’s number one financial powerhouse (soon you will feel it stronger, as Beijing will become a key emergency lender for cash-strapped Western governments), but China’s private investors are still relatively weak and financial assets of its households are meager.

Chapter 1

GDP: Toward the U.S.-China Duopoly

Just 10 years ago, in 2001, China’s nominal Gross Domestic Product (GDP) was the sixth-largest in the world: only a little larger than Italy’s. It comprised 12.9 percent of the GDP of the United States and 32.4 percent of Japan. By 2010, when China overtook Japan to become the second-largest economy in the world, it reached 41.2 percent and 107.7 percent respectively, exceeding Germany’s GDP by 78.8 percent, Britain’s 2.6 times, France’s 2.3 times, and Italy’s 2.9 times (Table 1.1).

Table 1.1 GDP at Current Prices ($ billion)

Source: IMF WEO Database, September 2011.

2001 2010
United States 10,286 14,527
China 1,325 5,878
Japan 4,095 5,459
Germany 1,892 3,286
United Kingdom 1,471 2,250
France 1,341 2,563
Italy 1,118 2,055
India 488 1,632
World 32,008 62,911

Within the same period, the United States’ share of the global GDP dropped from 32.1 percent to 23.1 percent, while that of China surged from 4.1 percent to 9.3 percent (IMF 2011).

Between 2001 and 2010, China’s GDP in current dollars increased 4.4 times against 1.4 times in the United States, 1.9 times in France, 1.8 times in Italy, 1.7 times in Germany, and 1.5 times in the United Kingdom. In India it rose 3.4 times, in South Korea twice.

Our simple simulation has shown that, if in this decade the U.S. annual nominal GDP growth averages 3 percent and China’s (in current dollars) 10 percent,1 in 2020 the size of the Chinese economy will reach three-quarters that of the United States. (According to the IMF forecast, in 2016 China’s GDP will be about 60 percent that of the United States and 170 percent of Japan’s.)

It looks most probable that at the end of this decade, in terms of the size of the economy, China and the United States will be the two giants towering high above all other countries and that China will catch up with America somewhere in the middle of the 2020s. As far as the size of national economies is concerned, the global economy is rapidly moving toward a duopolistic structure with the United States and China somewhat resembling the two Petronas Towers in Kuala Lumpur, Malaysia, whose height by far exceeds that of any other building in the city.

One more country looked upon as a new great economic power comparable to China is India. This conventional view is wrong, at least at this point. No doubt, as the second-largest emerging economy, India is becoming increasingly important, but compared to China, it is in a different weight category, and the global impact of its growth is much smaller.2

In 2001, India’s current GDP equaled 36.8 percent of the Chinese, and in 2010 the proportion fell to just 27.8 percent. In other words, today the Chinese economy is almost four times as large as the Indian, and the gap is widening because China is growing faster.

GDP comparisons based on the national currencies’ exchange rates, may not reflect China’s real economic strength versus the United States (and the West in general), because Chinese prices are much lower. In other words, for one and the same product or service in China you have to pay less dollars than in the United States. In this regard, the estimate based on the currencies’ purchasing power parities is more accurate. Calculated on the PPP basis, in 2010 China’s GDP was already 69.7 percent that of the United States and 2.3 times larger than the GDP of Japan.

As for the real GDP, in China its average growth rate for 2001–2010 was 10.5 percent as opposed to 1.7 percent in the United States, 1.4 percent in the United Kingdom, 1.2 percent in France, 0.9 percent in Germany, and 0.7 percent in Japan (Table 1.2). In India it was 7.6 percent. (Roughly, an annual 7 percent growth rate will double the GDP within 10 years.)

Table 1.2 Real GDP Growth Rates in 2000–2010 (%)

Source: IMF WEO Database, September 2011.


In the 2000s, China’s (and, to a lesser extent, India’s) growth was steadily accelerating and reached its peak in 2007. Then, though having fallen by several percentage points, it remained comfortably positive in 2008–2009. Major Western economies grew reasonably well (around 2–3 percent a year) in 2004–2007, but registered a very low growth in 2001–2003 and a zero/negative growth in 2008–2009.

In 2010, China’s (and India’s) growth rates became double-digit, while the West entered a phase of a sluggish recovery. Only Germany is emerging as a growth engine in Europe, while, as of mid-2011, the recovery in the United States is somewhat losing momentum, and pro-growth trends in Japan have been undermined by the devastating earthquake and the nuclear disaster.

Compared to Western economies, China looks much better in terms of not only average growth rates (this may be natural as economic development stages are different), but also growth stability. Notably, since the start of China’s market transition in 1978–1979 and up to the current period, it has never experienced a recession, and there is little reason to believe that one will come in the 2010s (we will return to this point later on).


1. Ten percent growth of nominal GDP means about 7 percent growth of real GDP, allowing for an inflation rate of 5 percent. Seven percent is the growth target for the period of China’s twelfth Five-Year Plan (2011–2015), which, as many economists (the author included) believe, represents a bottom line. It is more than likely that in reality China will grow faster. Thus, regarding China, the assumption for this simulation is rather conservative. For the United States, a 3 percent nominal growth rate means 2.5 percent real growth if the inflation rate is 2 percent and 2.7 percent real growth if it is 1 percent.

2. Still, between 2001 and 2010, India’s GDP rose from 4.7 percent to 11.2 percent of the United States, from 11.9 percent to 29.9 percent of Japan’s, from 25.7 percent to 49.7 percent of Germany’s, from 33.0 percent to 72.5 percent of the United Kingdom, and from 36.2 percent to 63.7 percent of France’s. In 2010, it was the world’s tenth-largest economy, while in 2001 it was at number 14. The countries it overtook are Spain, Canada, Mexico, and South Korea.

Chapter 2

Manufacturing Output: China Is Already the Number One

In manufacturing output, the shift of global power balance is drastic. In this sector the West has lost its dynamics, and all the growth energy has gone to China and other emerging economies.

Between 2001 and 2009, the new economic giant increased its manufacturing output (value added in 2005 U.S. dollars) by 136.8 percent (2.368 times), while growth in the West was very slow if not negative. In all major European economies, manufacturing output in 2009 was smaller than in 2001. As 2009 was the year of the worst recession of the postwar era, we will also present the data on the Western countries’ manufacturing output growth between 2001 and 2007, when it reached its precrisis peak. So, between 2001 and 2009, the manufacturing value added in the United States increased 15.9 percent (between 2001 and 2007, the increase was 20.7 percent) and in Japan 14.6 percent (24.3 percent). In Germany, it fell by 8.8 percent (the increase in the 2001–2007 period was 15.9 percent), in France 7.4 percent (an increase of 6.6 percent), in the United Kingdom 12.2 percent (an increase of 1.5 percent), and in Italy 18.0 percent (an increase of 2.0 percent). In India between 2001 and 2009, the increase was 97 percent, but its manufacturing output is less than one-tenth that of China.

As for absolute numbers, in 2008 China’s manufacturing output (value added in current dollars) exceeded that of the United States: $1.87 trillion and $1.79 trillion, respectively. According to the latest available data, in 2009 its manufacturing value added hit 2.05 trillion or 21.2 percent of the world’s total. The figures for the United States are 1.78 trillion and 18.4 percent, respectively. Japan’s manufacturing output ($1.05 trillion) was only half that of China, and Germany’s ($568 billion) a little more than one-fourth (United Nations 2010).1

As far as production volumes are concerned, in the first decade of the twenty-first century China emerged and consolidated its position as the world’s largest, if not dominant, producer of a wide variety of manufacturing goods, often leaving all other contenders far behind. In contrast, the range of major manufacturing items whose production is led by Western countries has significantly narrowed.

If current differentials in the growth dynamics are preserved, already in the second half of this decade China’s production of manufactured goods will be greater than that of the United States and Japan combined.

Besides, as in the case of GDP, comparisons based on the national currencies’ exchange rates have to be treated with caution: Their results may be biased in the West’s favor because one and the same product is usually cheaper in China than in the West.


1. According to other sources, as of 2009, the United States was still slightly ahead, but China would certainly overtake it in the very near future. UNIDO, presenting the data on the manufacturing value added in constant 2000 U.S. dollars, ranks the United States first and China second: Their shares of the world total in 2010 were estimated at 23.3 percent and 15.4 percent, respectively (UNIDO 2011).

Chapter 3

Merchandise Exports: From China’s Lead to China’s Dominance?

China has been elevating its share of world exports at a tremendous speed, drastically changing the global trade power balance within a remarkably short time.

By 2008, it had risen to the position of the number one exporter of manufacturing products with a share of 12.7 percent of the world’s total. (Manufactures account for almost 70 percent of the country’s total merchandise exports.)

The following year it became the largest exporter of merchandise goods as a whole, overtaking Germany; China’s share of the world’s total reached 10 percent. In 2010, it moved further ahead of the followers. Also, Germany ceded the number two position to the United States.

Between 2001 and 2010, China’s exports increased 5.9 times as opposed to 1.4 times for the United States, 2.2 times for Germany, 1.9 times for Japan, 1.6 times for France, 1.5 times for the United Kingdom, and 1.8 times for Italy. India’s exports grew 5.0 times (WTO 2011).

In 1983, it accounted for a meager 1.2 percent of global exports against 11.2 percent for the United States, 9.2 percent for Germany (the data for 1983 are for West Germany only), 8.0 percent for Japan, and 5.2 percent for France. Until 1993 it increased its portion twofold and within the next 10 years 2.4 times (Table 3.1).

Table 3.1 Share of the World Merchandise Exports (%)

Source: WTO International Trade Statistics.


In other words, since the early 1980s China has at least doubled its share of the world’s merchandise exports every 10 years. If the trend continues, at the beginning of the 2020s it may account for around one-fourth of the world’s total, exporting three or more times as much as the United States, Germany, or Japan. As China’s share becomes higher and higher, it may be increasingly challenging to maintain its growth pace; even so, a share of 20 percent of the world exports in the early 2020s still looks quite feasible. And even if, like today, about 55 percent of China’s exports are accounted for by multinationals’ subsidiaries, exports of domestic Chinese companies will still significantly exceed the total for any major Western country.

The data presented in Table 3.1 reveal one more important trend, or rather a reversal of the trend.

Between 1983 and 1993, the United States, Japan, and the major European powers were also enhancing their shares of global merchandise exports, albeit, compared to China, at a slower pace. However, between 1993 and 2003 their shares dropped: for major European countries only slightly, but for the United States and Japan by as much as about 3 percentage points. (In 2003, though, China was still lagging behind the leaders, its exports volume comprising only 57.8 percent that of Germany’s and 60.2 percent of the United States, but already 92.2 percent of Japan.) This new trend continued into the mid and late 2000s: In 2003–2010 China’s share soared again, while the shares of all major developed countries registered a decline of between 1 and 2 percentage points.

To summarize, having established itself as the world’s leading exporter, China is steadily ascending to become the dominant exporter.