Please repeat this sentence over and over: “China will overtake the United States as the world’s largest economy. China will overtake the United States as the world’s largest economy.” Somebody must have given Wall Street and the mainstream media this instruction at the beginning of this decade, and some people are still following it.
The truth of the matter is, even if you have four times the population you have to bring something more to the table than just building things and stealing technology: You have to compete. China previously was quite competitive because of a cheap currency, cheap labor, and cheap land. Not anymore. Now it has to innovate to keep moving ahead.
Hedge fund manager Jim Chanos of Kynikos Associates has long been skeptical about China’s ability to do just that: “We are still waiting for that one on China,” he said.
While Chanos’s word carries some sway, we now have the scientific proof that innovation in China is just not happening.
“Faced with rising production costs, an aging population, and diminishing returns on the massive capital investments of the past three decades, China must now evolve to a model where productivity gains are generated through innovation and demand through domestic consumption,” the World Economic Forum states in its Global Competitiveness Report of 2015.
In fact, China is ranked only No. 28 in global competitiveness, compared to No. 3 for the United States.
