Xi Jinping's US visit will highlight China-US economic ties
- By John Ross
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E-mail China.org.cn, September 18, 2015
Using the latest statistical methods of international economic agencies such as the OECD, Figure 1 shows that capital investment accounted for 51 percent of U.S. economic growth in 1990-2014, while capital and labor inputs together accounted for 76 percent. Only when it can match U.S. input levels, above all capital investment, can China achieve a U.S. level of development and productivity.
In 2013, China's annual fixed investment per person was US$3,199 compared to the U.S. figure of US$10,017.
To take another example, in 2012, the latest available data, there were 15 km of railway track per person in the U.S. compared to 1 km per person in China, a big factor in the productivity of the logistics system.
It is, therefore, impossible for China to close the gap in capital inputs to reach U.S. levels in the short to medium term. Even if China adopts brilliantly flawless policies, it will not reach U.S. levels of productivity for decades. Equally, even a U.S. economic collapse on the scale of the Great Depression, which will not occur, would not reduce U.S. investment per person and wages to the Chinese level.
As China is by far the world's largest developing economy, the U.S. will also not find any alternative comparable source of supply to China for price-competitive medium technology products.
It can, therefore, be predicted with certainty that, in 10 years' time, when the presidents of China and the U.S. meet, these fundamental parameters will be unchanged – U.S. productivity will still be higher than China's and the two economies will still be fundamentally complementary. The stability of such fundamentals offers a firm foundation for mutually beneficial relations.
China certainly loses by any restrictions on exports of U.S. high value products, but equally neo-conservatives, by limiting trade with China, simply drive up costs for U.S. consumers – and therefore drive down U.S. living standards.
Restrictions of trade between the world's two largest economies also have negative economic consequences for other countries as they slow overall world growth and create a "lose-lose" scenario, for everyone. The stable economic basis of China's concept of a "new model of major country relations" is a win-win for the people of China, of the U.S. and of third countries which results from trade and investment between mutually complimentary economies.
The writer is a columnist with China.org.cn. For more information please visit: http://www.shenbo75.com/opinion/johnross.htm
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