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Here is a fact beyond dispute: China is set to become the world’s largest economy. The only debates are by what date and by what measure?



According to the IMF, Asian economies will represent at least 40% of global economic output by 2015, when adjusted for Purchasing Power Parity (PPP - which is just a way of saying that a McDonald’s hamburger should be similar cost everywhere and if it is not, we need to make an allowance in exchange rates to calculate the true relative value of a nation’s economy).



Many economists expect that on PPP calculations, China will overtake the United States long before 2020, probably by 2015-17. All global economists agree it is only a matter of time, by whatever measure. Leaders in developed nations should be ready for a major psychological, economic, cultural and political shift, which will impact the rest of this century.

(This article was written in 2012 and made many very accurate forecasts on the Future of China. For latest article on China see How China will dominate the world, and why most business leaders are blind to China's impact. Future of China, economy, trade, manufacturing, consumers, retail, e-commerce, military and security.)

Need a world-class keynote speaker on trends in China? Phone Patrick Dixon now or email.

Reality gap in perception of China’s future

I lecture to tens of thousands of people, in up to 25 nations a year. I also correspond with over 42,000 followers on Twitter, 2,000 on Linkedin, and on YouTube or my own Website bulletin boards with representatives of another million or two a year. Here is what I observe:



Most people I talk to in developed nations are really struggling to understand the deeper implications of the rise of China, to really comprehend what it all means, the scale of this gigantic convulsion on the global stage.



Take the United States: both Presidential candidates fought electoral battles with similar messages about American being the greatest nation on earth, and the need to keep America so. Their messages were somewhat out of step with the uncomfortable reality that China is about to become, on simple economic terms, the most powerful economic force on the planet.



Lessons from British loss of Empire

Let us pause for a moment. Winston Churchill once said that to understand the future we need to look to the past.



In the 19th century, the British Empire was the greatest single economic force, ruled from London. The Empire was a vast free trade area, that anticipated globalization today. The collapse of that Empire was a traumatic psychological blow for the British people, following the end of the Second World War. At the same time, our world faced the rise of a new Soviet force stretching across half of Germany and all Eastern and Central Europe, to the borders with Turkey, Canada and China.



As a UK citizen I can say that it took half a century for British self-esteem to recover from deep unease about a colonial past. The UK has had to adjust to a lesser future, as a fringe component in a wider European Community of 26 other nations, with loss of autonomy on a huge range of day to day issues.



America as global defender of freedom and democracy

Since the end of the Second World War until the collapse of Communism, the United States saw itself as the natural global defender of freedom, justice, democracy and market forces, pitted against Russian and Chinese Communist superpowers in a bitterly fought Cold War.



When the Iron Curtain collapsed, it became clear how far Russia had fallen, from a global Superpower with thousands of nuclear warheads, to a nation stricken by psychological malaise, low life-expectancy, corrupt institutions, bankrupt state-owned enterprises and a badly broken economy. China in 1990 also seemed to have severe problems of its own, which left the United States as the world’s sole Superpower, able to play a policing role on a global scale.

Global influence is changing rapidly

Russia continues to limp along to recovery but still aspires to a regional power-base.



But China is being reborn as a dynamic and rapidly growing economy with a greater vision for regional influence, staking controversial territorial claims and spending billions more each year on army, navy and airforce.



So now there are two Superpowers, and if that was not disturbing enough to many in America and Europe, the larger of the two is about to be China.

China’s natural place in the world restored



To those in China, the nation is simply regaining its natural balance in the world after two centuries of decline. This a nation that has had a strong national identity for 3000 years, compared to a country that was created less than 300 years ago.



The very name for China in Mandarin is the Chinese symbol for the whole world, with a line through the middle, literally "Middle Earth".



China has always had one of the largest populations of any nation, and represents around 1 in 6 of all humans alive today. Combined with India, these two embrace a third of all the earth’s inhabitants. These two nations believe that as part of the natural order, that between them they should comprise therefore a third of the economic power of the whole world.

American patriotism – strong glue in a young nation

And the United States? America is a very young nation: a nation of many peoples, built into perhaps the world's most vibrant, dynamic and highly entrepreneurial community, on a foundation of pioneers, settlers and brave dissidents who struck out for freedom in a distant land.



America is bound by the strong glue of national pride. In few other nations do you see so many national flags or symbols – on buildings, outside homes, tied to cars. Such enthusiastic nationalism seems odd to nations to many people in Europe, who are on the whole more at ease with the cultural ambiguities in their national life, and tend to be more reticent about waving their national flags



It can be hard for American leaders to talk about the relative decline of America economically, without sounding unpatriotic. Rhetoric about a Strong America, is also often tied up with rhetoric about a Strong Dollar – as we see in discussions on bulletin boards and Twitter.



This is despite the fact that a primary reason why China is able to export so much and so cheaply, is precisely because the Dollar is so strong against Asian currencies, buys so many things, and makes similar US goods more expensive to export.

Calls for protection against "economic damage" from China

Many Americans passionately believe that the answer is to defy market forces and protect US jobs by imposing big import taxes on a wide range of goods. But as history shows, you can only prop up inefficient enterprises for so long, before the day of reckoning comes.



And the day of reckoning could come even faster if America suffers retaliation in a similar kind of blockade against most important US exports.



The truth is that even if America was to totally ban all imports of all goods from China, the end result will still be the same in terms of China's ultimate global position, because America is less and less important to China’s economic growth with every passing year.



A rapidly increasing proportion of exports from emerging markets, are imports into other emerging markets, many of them bought by the emerging middle classes who are increasing by 50-80 million people every year.



In any case, in a complex manufacturing world, how do you prevent components from one nation being built into products in another? Vietnam is now a major supplier of components for Chinese factories. But the trend could easily switch so that Chinese components are built into everyone else’s products to get around US import bans.



The stronger the calls for protection against China’s low cost goods, the more obvious it is that there is a failure to grasp the fundamental realities of the situation. Government leaders in the US, United States or Australia can no more prevent the rise of China by imposing trade barriers, than they can prevent the turning of the earth every 24 hours.



It all adds up to a painful and inevitable adjustment.

A new moral force emerging across Asia

This will be a new world with a new moral force on a wide range of issues. If India and China combine in their global campaigning for a better future, they will be able to claim to be the legitimate voice of a third of humanity.

Together, they will represent an increasingly dominant economic force, even more so, if welded into such an Alliance were all the members of the ASEAN community, who themselves represent a population of 600 million more.



For the American people in particular, I believe these changes will be so profound, that as with the British after 1945, it could take up to 50 years for America to find it’s authentic voice again, not as the greatest nation on earth, but as the second, or maybe even after India by then, the third greatest nation on earth, measured on simple PPP terms.

Need a world-class keynote speaker on trends in China? Phone Patrick Dixon now or email.

* What do YOU think about the rise of China and other emerging nations? What do you think the impact will be on the future balance of our world? Do comment below. I reply to each one.



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