China will not replace the USA as the central economic power, even if the economy of China exceeds that of the USA. Step back from the details for a moment and think about great economic centers when they are at the peak of the power. Is there any generalization we can make that is true of all civilizations, in all centuries, and for which we have fairly detailed records, even going back thousands of years? Yes, there is at least one generalization that we can make with confidence: each center, when it was at its peak, was a place where foreign merchants felt safe and comfortable. Does that hold true today in China? Do foreign merchants feel they can make deals as equals with the native Chinese merchants? Can foreigners trust that the Chinese courts are fair and neutral and unbiased?
Islam was at it peak in the 800s and 900s, and during that time Jews, Christians, Hindus and other groups, which had been hated in the past and would be hated again in the future, were all welcome.
Venice was at its peak in the 1400s, and muslims merchants felt safe there, despite the strong anti-muslim sentiment in much of Europe at that time. The same holds true of Amsterdam when it was at its peak in the 1600s.
As for England, as it reached its peak in the 1700s, we have Voltaire's famous description:
"Go into the Exchange in London, that place more venerable than many a court, and you will see representatives of all the nations assembled there for the profit of mankind. There the Jew, the Mahometan, and the Christian deal with one another as if they were of the same religion and reserve the name of infidel for those who go bankrupt. There the Presbyterian trusts the Anabaptist, and the Church of England man accepts the promise of the Quaker. On leaving these peaceable and free assemblies, some go to the synagogue, others in search of a drink; this man is on the way to be baptized in a great tub in the name of the Father, by the Son, to the Holy Ghost; that man is having the foreskin of his son cut off, and a Hebraic formula mumbled over the child that he himself can make nothing of; these others are going to their church to await the inspiration of God with their hats on; and all are satisfied."
He does not use the phrase to mean "the biggest economic power", though often the center is the biggest economic power. But he also applies it to Antwerp in the 1500s, when the religious wars were at their peak, and when, despite the wars, southern Europe and northern Europe needed to find a way to trade with each other, and market and political forces established Antwerp as the center of trade in Europe, because it was a northern city still mostly under Spanish control -- the perfect meeting place of north and south.
I am not saying that the USA will always be the center of the world economy. But I am saying that the next center will be open to the world, in the same way that previous economic centers were. China is not currently open to the world in the same way. It would take a political revolution as big as the one in 1949 to transform China into the kind of open political entity that former economic centers have been.
And can a nation really have the dominant currency if it is not the central economic power? It is reasonable to say that Chinese yuan will become more important over time, but this title implies a larger change: "The yuan is displacing the dollar as a key currency". If the implication is that the yuan will actually replace the dollar as the dominant reserve currency, then that implication is probably false. Politics plays a large role in these shifts, not just economics.
> Do foreign merchants feel they can make deals as equals with the native American merchants? Can foreigners trust that the American courts are fair and neutral and unbiased?
As a foreigner, I feel somewhat qualified to answer that question.
The corruption perceptions and international ease of doing business surveys and rankings would provide more statistically significant evidence to counter your anecdote. Note that competition is relative - we may find the U.S. courts deplorable on specific issues but they do turn out a measure better than most other economic powers' courts, e.g. China, Russia, or Brazil.
Did you look at the actual data behind this survey? I just did, and it's a little sketchy.
The US ranks alongside the rest of Europe for most of the data sources that include the US (many of TI's data sources do not), except for two surveys which sharply differ:
* TI's own "Bribery Payer's Index", which gives the US a 4.6 out of 10 (a score more compatible with Southeast Asia than North America) in the crosstabs, but for which the actual TI BPI report gives results back in line with Europe.
* IMD's survey from 2010, which gives the US a 6.5 (again, significantly lower than Europe) but for which no actual data appears to be publicly available.
In both cases, the actual data extracted from these surveys (the TI index is a meta-analysis of many surveys; a survey of surveys) is "phone surveys to business leaders"; TI has selected specific questions from these surveys as indicative and discarded the rest of them. In the IMD case, for instance, there appears to be one question at all that's selected from the survey: "Is there bribery or corruption, yes or no".
A 6.5 score from the IMD report puts the US in the 6-7 band along with Estonia, Malaysia, Spain, and Israel. This seems like an extraordinary claim, as is the claim that there is less bribery in Qatar and Chile than in the US.
Similarly, the 4.x score in the BPI survey puts the US in a band with China, Russia, the Czech Republic, the Philippines and Argentina. This is an extraordinary claim, requiring extraordinary evidence.
If you excluded the BPI and IMD surveys from the data set, the US would probably be duking it out for tenths of a point at the top of the list with the rest of Europe. As it stands, we're simply in the top quintile, unlike China.
I agree that this is an extroidinary claim, but it is technically named as the Corruption Perception Index, which is relevent to the discussion about the perception of organizations doing business in different countries.
The real question is: Is there any other data on this scale to refute or back this research?
Once again, it's relative. It's not just corruption that matters, it's also economic power. Germany, for example, is ranked above the US at 14 in the CPI. However, the US is ranked 4th in ease of doing business, while Germany is 20th.
Economic power is also somewhat based on productive might (GDP, basically). If it weren't then we'd expect New Zealand to be the economic center of the world. Are we really going to argue that New Zealand is the economic center of the world?
The only entity I see which even comes close to matching these figures is the EU as a single entity. However, recent events have shown us that the EU is not a single entity.
>The corruption perceptions and international ease of doing business surveys and rankings would provide more statistically significant evidence to counter your anecdote.
As a foreigner in the US, who have lived and worked in two BRICS (Brazil and China) and visited a third (Russia), I don't think you've properly made your case. What about doing business here is inherently less fair to you as a foreigner doing business?
I explicitly am asking about doing business in the sense of trade of goods or services, both buying and selling. I am not talking about coming here as an employee on an immigrant visa.
"Can foreigners trust that the Chinese courts are fair and neutral and unbiased?"
My question: Can foreigners trust that the US courts are fair and neutral and unbiased? Please look at the most current cases of Apple vs. Samsung and Cisco vs. Huawei before giving your answer.
You are pinning a vast economical shift on just one factor? You have a very blinkered view of history. When Voltaire wrote that description he was just seeing the very few anointed few which the English allowed for their own benefit to trade with them in London.
>each center, when it was at its peak, was a place where foreign merchants felt safe and comfortable.
And talking about foreign merchants feeling safe and comfortable, did you ever ask how the American Indians felt as the US become an economic empire, or how comfortable it was for non-europeans to do business in the European colonies? Yes, London allowed a few traders from it's colonies but they worked damn hard to make sure the colonies didn't industrialize. India in particular become deindustrialized under British rule - all of India's cotton mills were packed up and send to Manchester, and the production of cloth forbidden. Even relatively small things like the production of salt in India was forbidden so British salt could be exported to India.
The majority of foreign merchants weren't even allowed to participate in British markets and were violently suppressed if they tried to. This world you speak of - where economies grew because they set up such nice and comfortable places to do business in - never existed.
You say China isn't open to business - why then is the entire Fortune 500 doing business in China and increasingly shifting more and more of their manufacturing there? There is cost, but there is also the fact that besides cost, as Steve Jobs told Obama, the expertise, supply chains and capability is shifting to China.
If you read any recent works on China, like the recent one on China by Dambiso Moyo - she makes the point that China is better at doing business with developing countries than America. http://www.dambisamoyo.com/
>Do foreign merchants feel they can make deals as equals with the native Chinese merchants?
This is exactly the point she addresses, and most African and many developing Asian countries are increasingly favoring dealing with Chinese. The Chinese pay more for resources, build useful infrastructure, and provide much needed goods at affordable prices - all things which are increasingly making it an essential part of the economic center in much of the world.
Monarchies were hardly an open political entity and the Middle Ages were hardly tolerant times. So perhaps the base ingredient is rather simple, be open to trade. There have been periods when both China and Japan were inward-looking, and it took gunboat diplomacy to force open trade routes.*
Today, regardless of politics, China is most definitely open for business, and actively courting the world for trade. Many expats choose to live, work and build businesses there. If you don't, thanks to technology, you can still do your business with China while sipping a pumpkin spice latte in Starbucks.
*As an aside, today's multi-national corporations are remarkably similar in many ways to the British East India Company, just without the muskets!
The title says displacing, not replacing - the yuan carving out a zone of dominance in Asia-Pacific would, by itself, be monumental.
Economic orthodoxy asserted that an opening of the Chinese economy and FX regime necessarily precede yuan internationalisation. Observing currencies (and implicitly capital flows) moving in concert with the yuan absent those steps suggests a back-door route to internationalisation distinct from the traditional IMF/B-W path (and thus off the radars of the American and European financial centres).
Given that currencies and capital markets are in large part a confidence game, i.e. punctuated equilibria versus smooth progressions, seeing premature, and more shockingly shadow, internationalisation is profound.
'displace' and 'replace' are synonyms in this context. What you are discussing is China becoming the dominant reserve currency in East Asia, which is a separate claim than the one made by the article.
I don't mean to twist this into a bitcoin debate/discussion, but this statement...
"But I am saying that the next center will be open to the
world, in the same way that previous economic centers
were."
... appears to help explain the support and rise of bitcoin. The only way it isn't yet open to the world is access and usability and there are people currently solving those two problems.
The only problem I see with that is that was true when fast reliable communication required presence. Now China could be the economic center of the world, but no one foreign would have to show up.
The problem was never having to show up. The problem is making sure that disputes are solved fairly, that your debtors can be compelled to pay and that your assets won't be seized.
I think you make a good point, and show a good history of the rise of countries that adopted economic liberalism (and subsequent decline of many when they rejected it).
However, the stronger point that comes from your comment is that the USA needs to look at how it is drifting from a place where foreign merchants can gather safely and trade freely, and how that will certainly affect the future prosperity.
Islam was at it peak in the 800s and 900s, and during that time Jews, Christians, Hindus and other groups, which had been hated in the past and would be hated again in the future, were all welcome.
Venice was at its peak in the 1400s, and muslims merchants felt safe there, despite the strong anti-muslim sentiment in much of Europe at that time. The same holds true of Amsterdam when it was at its peak in the 1600s.
As for England, as it reached its peak in the 1700s, we have Voltaire's famous description:
"Go into the Exchange in London, that place more venerable than many a court, and you will see representatives of all the nations assembled there for the profit of mankind. There the Jew, the Mahometan, and the Christian deal with one another as if they were of the same religion and reserve the name of infidel for those who go bankrupt. There the Presbyterian trusts the Anabaptist, and the Church of England man accepts the promise of the Quaker. On leaving these peaceable and free assemblies, some go to the synagogue, others in search of a drink; this man is on the way to be baptized in a great tub in the name of the Father, by the Son, to the Holy Ghost; that man is having the foreskin of his son cut off, and a Hebraic formula mumbled over the child that he himself can make nothing of; these others are going to their church to await the inspiration of God with their hats on; and all are satisfied."
I am using the phrase "economic center" in the sense that Fernand Braudel uses it in his book "The Perspective Of The World": http://www.amazon.com/Perspective-World-Fernand-Braudel/dp/0...
He does not use the phrase to mean "the biggest economic power", though often the center is the biggest economic power. But he also applies it to Antwerp in the 1500s, when the religious wars were at their peak, and when, despite the wars, southern Europe and northern Europe needed to find a way to trade with each other, and market and political forces established Antwerp as the center of trade in Europe, because it was a northern city still mostly under Spanish control -- the perfect meeting place of north and south.
I am not saying that the USA will always be the center of the world economy. But I am saying that the next center will be open to the world, in the same way that previous economic centers were. China is not currently open to the world in the same way. It would take a political revolution as big as the one in 1949 to transform China into the kind of open political entity that former economic centers have been.
And can a nation really have the dominant currency if it is not the central economic power? It is reasonable to say that Chinese yuan will become more important over time, but this title implies a larger change: "The yuan is displacing the dollar as a key currency". If the implication is that the yuan will actually replace the dollar as the dominant reserve currency, then that implication is probably false. Politics plays a large role in these shifts, not just economics.