How big is China compared to America

China vs. USA: superpowers in direct comparison

At my last investor conference in Beijing at the beginning of November, two worlds of groups of people with different moods collided: on the one hand, investors were unsettled by the collective bargaining disputes between the USA and China, and on the other, self-confident Chinese entrepreneurs who trust that the government is in control of the country. In 7 graphics I compare the two superpowers:

G20 meeting in the shadow of the US-China wage dispute

The wage dispute kept the investor world in suspense, at least until the G20 meeting. Presidents Xi Jinping and Donald Trump then agreed at a bilateral meeting in Buenos Aires on December 1 to postpone the next tariff round in the trade war between the US and China. According to the White House statement, China has committed to increasing its imports from the United States, with a focus on agricultural, energy and industrial products. The US and China will immediately begin negotiations on "structural changes" in the areas of intellectual property protection, non-tariff barriers and trade in services. If no agreement is reached on these issues within 90 days, the US has threatened to implement the measures previously planned for January 1 to increase the tariff rate on Chinese goods valued at $ 200 billion from 10% to 25%. If so, China would most likely take retaliation.

What does that mean for the outlook? Thanks to the brief pause in the American trade war with China, investors can relax a little for now. But the danger of another escalation is evident. Intellectual property theft and subsidies to preferred industries are long-standing problems that will be difficult to solve in 90 days.

Isn't the US-China trade war part of a larger geopolitical conflict between the two superpowers?

If it were based on the size of the population, China has already won the claim to leadership over the USA.
Population in China 2017: 1,390 billion (IMF estimate for 2023: 1,420.9 billion)
Population USA 2017: 325 million (IMF estimate for 2023: 338.6 million)

In terms of economic output (see Figure 1) it will also be tight for the USA. In 1990, according to the IMF, China's economy was USD 1,100 billion in PPP (calculated in purchasing power parities). Back then, that was only 19% of American economic output. Then came the rapid development.
2000: 3.700 billion IMF PPP; IMF (36% of the US)
2017: 23,000 billion IMF US dollars PPP; IMF (119% of the US)
According to IMF estimates, 37,000 billion US dollars PPP or 151% of the USA are expected for 2023.

Fig 1. Source: IMF

At least four other good reasons can be given why the US can be overtaken by China as a superpower in this century.

  1. Defense budget

In 2017, global military spending was higher than ever. According to data from the Stockholm peace research institute Sipri, military spending rose to $ 1.7 trillion last year. That is the equivalent of more than 1,400 billion euros and 1.1 percent more than a year before. The increase comes against the background of growing tensions between China and its neighbors as well as the US. The USA ranks first with US $ 610 billion, followed by China with US $ 443 billion, which is the second largest military budget (see Figure 2). This is followed by the emerging markets of Saudi Arabia (US $ 69 billion), Russia (US $ 66 billion) and India (US $ 64 billion). Even if China is still well behind the USA, the dynamic development is clearly on China's side.
Defense spending is a key driver of innovation in communications, transportation and energy, and a host of others.

Fig. 2. Source: SIPRI, World Bank, own calculations

  1. Research and patent filing expenses

Figure 3 shows that China's research and development (R&D) spending as a percentage of GDP was only 0.9% in 2000 (versus 2.6% in the US); most recently they were 2.1% (2.7% in the USA). The average growth rate over the past 15 years was 5.6% in China, compared to only about 0.3% in the USA.
It is therefore not surprising that China is ahead of the pack when it comes to patent registration in the international patent system (PCT) (see Figure 4). With Huawei Technologies, ZTE Corporation and BOE Technology, three Chinese companies made it into the top 10. While Intel Corporation and Qualcomm Corporation from the USA and Mitsubishi Electric Corporation and Sony Corporation from Japan were the most active companies.

Fig 3. Source: OECD

Fig 4. Source: Patent Cooperation Treaty (PCT), WIPO Statistics Database

 

 

 

 

 

 

 

 

 

  1. Number of scientific publications

China is gaining ground in science and technology. The number of publications of research articles in natural science and technical subjects (Science & Engineering = S&E) is also an important indicator of a country's future innovative strength. In 2003 (see Figure 5), China accounted for just 7.4% of the global total with 87,000 publications, the US with 322,000 (27.2%), and Europe with 389,000 (32.9%).
And today? China has now overtaken the USA with 409,000 publications with 426,000 publications. China has thus more than doubled its share to 18.6%, whereas the share of the USA fell significantly to 17.8%. Europe continues to lead the way with 614,000 (29.9%).
Looking at the details of all research that China and the rest are focused on, China is mostly pure engineering (28.9%), life sciences (14%), and medical sciences. (13.3%).

Fig 5. Source: National Science Foundation

  1. Number of STEM (S.cience, Technology, E.engineering and M.athematics) students

It is not for nothing that China is called one of the oldest civilizations and high cultures of mankind. Because education is booming in China and has been for some time, as Figure 6 shows. Between 2000 and 2014, the annual number of Chinese undergraduate degrees in science and engineering increased from 359,000 to 1.66 million. In contrast, the number of U.S. Graduates increased from 483,000 to 742,000 per year.

Fig 6. Source: National Science Foundation

 

CONCLUSION:

A number of structural factors suggest that, from a geopolitical point of view, the already emerging development from a uni- to a multipolar system will continue. China is gaining influence, the dominance of the USA is decreasing. This development is also used as an argument that the conflict between the US and China is not just a trade dispute. The suspension of the planned increase in tariffs on Chinese imports for 90 days will in fact only provide a brief relaxation in the secular conflict between two rival powers and systems.

In the long run, this statement also applies to the global financial market. The Chinese offshore US dollar corporate bond market has grown up and the course has been set for greater foreign capital flows. The volume for Chinese companies that issue in US dollars has increased by 161.5 billion US dollars from 79.8 billion US dollars to 241.3 billion US dollars in the last 5 years. The share of China in a representative index such as the J.P. Tomorrow CEMBI Broad rose from 11.5% to 24.6% in 5 years (see Figure 7). The number of companies that have chosen these channels of funding has almost doubled to 126. In view of this rapidly growing proportion of Chinese issuers, investor conferences, where Chinese companies present themselves and small groups of creditors' questions, are gaining in importance for fund managers who allocate capital globally in emerging markets.

Fig 7. J.P. Morgan CEMBI Broad Index

 

Important legal information:

Forecasts are not a reliable indicator of future developments.