A world turned upside down by China
- Hong Kong has been bested economically by Shenzhen while China may now have a bigger economy than the US
When Chief Executive Carrie Lam Cheng Yuet-ngor made a gaffe that she wasn’t worried about Shenzhen running ahead of Hong Kong economically, everyone jumped on her, including yours truly. And that was the headline, followed by more headlines this week when she had to backtrack.
But it seems we were all more interested in rounding on Lam than focusing on the real story: Shenzhen is now simply a bigger and better-run economy led by some world-beating companies. Take telecoms giant Huawei. The United States government has to mobilise all its covert and overt powers to try to destroy it or at least prevent it from being a global 5G monopoly. There are many other Chinese companies emerging from the shadows to become global players. For example, DJI was founded by a Hong Kong University of Science and Technology engineering graduate who couldn’t get funding in the city. Headquartered in Shenzhen, it is today the world’s largest supplier of commercial drones, so much so that the US Commerce Department has plans to put it on its sanctions list. Being sanctioned by the US is now something of a badge of honour, a proof of success and innovation in China.
But like everywhere else, the local news media primarily reflects local concerns. Somehow, many Hong Kong people aren’t concerned about Shenzhen, as they cling on to the illusion that their city is simply better and superior – however you understand those words – than any mainland Chinese city.
And if Hong Kong is being suppressed by the central government and forced into becoming “another Chinese city”, well, that’s not our fault, is it? If Hong Kong flounders, those people know who to blame. Even if they are right, though, and I am not saying they are, it’s self-defeating. But what can we expect when so many people cheered as rioters of last year chanted “let’s destroy and die together”, and “if we burn, you burn”?
Lam says Shenzhen remarks misinterpreted, touts Hong Kong’s national role
I imagine the reaction of some Hong Kong people to the rise of Shenzhen is a lot like that of many Americans, who can’t wrap their heads around the emerging and unmistakable trend that by more reliable economic measurements, China is already the world’s largest economy.
Before you laugh, let me assure you that it’s the conclusion of the Central Intelligence Agency (CIA) and the International Monetary Fund (IMF), a key pillar of the international financial system and whose policies have long been dominated by Washington.
The CIA’s official website is actually highly educational and is open to all. I would never have thought of getting an education in how economists calculate GDPs from the world’s leading intelligence agency!
“GDP at the official exchange rate substantially understates the actual level of China’s output vis-à-vis the rest of the world,” it said. Instead, PPP GDP “provides the best available starting point for comparisons of economic strength and well-being between economies”.
We need to understand the difference between the official “MER GDP” and “PPP GDP”. Both CIA and IMF prefer the latter as a more accurate measure of the true size and strength of a national economy.
Perhaps Americans, and some Hong Kong people, still tell themselves that it’s all knock-offs and intellectual property theft, and that the data are all fake, in China
MER stands for “market exchange rates” and has long been used to calculate GDPs around the world. MER GDP means adding up all goods and services produced by an economy in its own currency and then converting that total into US dollars at the current MER.
Why use the US dollar as the ultimate yardstick? That’s because the US economy has been the world’s biggest for decades after the second world war so it makes sense to use it as the baseline, until recently. For similar historical reasons, gold and oil are still quoted in US dollar, though Richard Nixon ended the international fixed exchange rate regime and the dollar’s convertibility to gold way back in the early 1970s.
Many mainstream economists now prefer to use PPP (purchasing power parity) GDP. PPP measures what consumers, say in China, can buy with the yuan at Chinese prices, rather than at American prices as measured in the dollar.
Measured in MER GDP, America is still No 1, with a GDP of US$20.8 trillion against US$14.6 trillion of China. But factoring in PPP, China’s GDP is 135 per cent of the US’, or one-sixth bigger.
Beijing’s man in Hong Kong urges city to capitalise on bay area opportunities
Perhaps Americans, and some Hong Kong people, still tell themselves that it’s all knock-offs and intellectual property theft, and that the data are all fake, in China. But many other indicators are also pointing to a resurgent Chinese economy getting ahead of the rest of the world. You can lie about this or that data set, but when so many different indicators, independently compiled, point in the same direction against your expectations, you may want to re-examine your own assumptions.
An interesting survey by Boston-based Lux Research studies 80 technologies across 10 industrial sectors in China relative to those in the rest of the world and finds significant inroads being made in most of them. For example, in terms of next-generation IT, China leads the world, including the US, in blockchain technologies (used for cybercurrencies and financial services), 5G networks and artificial intelligence, but is still behind the US in computer vision and IoT (Internet of Things).
In five types of advanced materials, it’s behind the US in four of them. It is, however, ahead of everyone, including the US, in carbon nano materials and is almost achieving parity with the world-leading US in plastic recycling.
Lux says: “In 2019, China spent US$310 billion on R&D, second only to the US globally … In addition, nearly US$95 billion in venture capital funding in 2018 surpassed the US for the first time.
“However, China’s venture capital space has cooled off, with only US$65 billion in 2019. China’s academic output is also well-documented, breaking 500,000 publications in 2019. In addition to quantity, quality continues to improve, as China’s top academic institutions are beginning to beat out the US in terms of breakthrough academic research as well.”
The global innovation index 2020 rankings are jointly compiled by French business school INSEAD, Cornell University’s SC Johnson College of Business and the World Intellectual Property Organization. The US leads among high-income economies while China is ahead of the upper middle-income economies.
It’s worth noting that the Chinese economy will be the only major one that is bigger at the end of this year than at the beginning
In terms of science and technology clusters, Shenzhen-Hong Kong-Guangzhou is second only to Tokyo-Yokohama. Seoul ranks third, followed by Beijing. San Jose-San Francisco (Silicon Valley) is directly behind, in fifth place.
Out of more than 130 countries and economies, the US is third while China is 14th and also the only upper-middle income country out of the top 32 countries on the innovation chart.
Technological advances underpin economic expansions. It’s worth noting that the Chinese economy will be the only major one that is bigger at the end of this year than at the beginning. Everyone else is contracting.
Here’s something to consider. If you want to undermine the world’s biggest economy because you don’t like its government, you are damaging the world economy itself. You are shooting yourself in the foot, just like many Hong Kong rioters did last year.
