31 thoughts on “Mount Fuji vs. the Mongol Horde”

  1. Nice and illustrative graph, but China’s growth now is a collosal bubble, and I wouldn’t be surprised if they saw a Fuji-esque descent, if not quite as steep…

  2. Unfortunately the original video isn’t on Youtube, but did anyone else think of this Monty Python song?

  3. I always get an extra laugh out of that song when I hear it these days at…

    “There’s nine hundred million of them in the world today”

    Oh! How far things have come…

  4. Is that graph from the most recent economist? I’d like to read the article…because I do not like the graph alone. Also, I hope Mongol horde was your title and not the Economist’s choice of words.

    I’m going to have to send that Monty Python song to all Sinophiles I know.

  5. Chinese GDP is no doubt massive but people also shouldn’t forget that China’s per capita income is still minuscule compared to Japan and other developed countries. When you have 1.3 billion people, your GDP will of course be pretty massive.

  6. Yeah, which is one reason one graph can never show a whole picture. Graphs showing Chinese and Japanese comparative advantage in export-led growth industries, or at least some coefficient of correlation between their export industries. Also then take into account a comparison between market share in certain geographic areas (domestic and foreign).

    I think if anything, in a purely economic viewpoint, Japan has more to gain from current and past Chinese economic development in a variety of ways. The future may be a different story if interest rates in Japan remain constant for the next decade and China is able to maintain its pace of growth & increase its innovative capacity.

    I am sure there is a good reason the Economist uses US GDP as the benchmark for the GDPs of China and Japan – I would just like to read/or see some analysis on the novel point it is meaning to advocate.

  7. Eamonn Fingleton, author of “Blindside: Why Japan Is Still on Track to Overtake the U. S. by the Year 2000” (heh), wrote that Japan’s GDP actually exceeded that of the US for a brief period in the endaka years 1994/95. Interesting that The Economist graph shows it getting only as high as about 70%. Different metrics appear to have been used, I guess. I’d find out how what Fingleton based his data upon, but I’d have to go find his book at the library, to which I donated it about ten years ago.

  8. One can use percentage of such and such GDP to argue anything –

    “According to the International Monetary Fund, the United States began the century producing 32 percent of the world’s gross domestic product. We ended the decade producing 24 percent. No nation in modern history, save for the late Soviet Union, has seen so precipitous a decline in relative power in a single decade.”

    by Pat Buchanan

    And seriously, they couldn’t have done up some kind of great wall graphic for China there?

  9. First of all, apologies — I meant to link to the page on Economist.com, not to the image file. That is now fixed. This graph is said to be a “web only” feature so it won’t be in the magazine. The comments on the web feature eviscerate the graph further on a number of fronts — not using PPP, not looking at quality of life factors, etc. My favorite comment:

    David Weiseth wrote: Comparing China to Japan is like comparing an apple to an orange by weight.

    The Economist has a habit of normalizing all its line and bar charts to a benchmark, rather than using raw data. I don’t necessarily think this is a bad approach as the raw data can also leave out part of the picture. The growth rate of the US economy has gone up and down but has been on a pretty consistent rise over the last 30 years, so it isn’t a bad line to use as a benchmark for filtering out all the benefits gleaned from new technology.

    I don’t doubt that China is experiencing a bubble, at least in the big cities. The big questions are (1) at what level the bubble pops, (2) how far it will fall back down, and (3) how long that fall takes.

    China does still have an extremely low per capita GDP, but that is their competitive advantage so long as they are on par with the other poor countries of the world (which are seeing gradual increases in overall living standards, outside of war zones at least), and there is evidence that Chinese technical abilities are catching up to other industrialized countries’: they now have large aircraft assembly lines and are taking the lead in electric car technology, for instance.

  10. It’s cute that the graph can be seen as a representation of Mt. Fuji I guess, but Japan has done a much better job of meeting the challenge of China’s emergence as a world economic power than has the United States. It seems that everything is made in China today, but Japan actually has a trade surplus with China–in no small part because China imports many of the advanced machinery necessary for modern factories from Japan. Also, Japan understands how the Chinese economy operates because China has copied the Japanese model.

    The U.S., on the other hand, has reacted to China’s rise in the same way it reacted to Japan’s: by preaching the virtues of free trade and market fundamentalism and then trading piles of dollars for value added goods.

  11. There are suggestions that not only is China experiencing a bubble, but that a good chunk of that bubble growth could be fake –


    Eric – while Japan’s numbers with China are more balanced than the USs, Japan did run a trade deficit with China every year between 1988 and 2008. Of course, this still looks like co-prosperity. The standard of living in Japan has improved since the bubble, mainly because of imports from China transforming the consumer enviornment.

  12. Thanks for the extra info Joe. I agree, the benchmark is not a bad one per say, I was just wondering why they chose to use it in that graph – maybe I just haven’t been paying enough attention to graphs in the Economist as much as I should be. Hey, I guess that speaks to the efficacy of their image choice!

    I honestly do not follow China enough to say a bubble is happening in the big cities, although bits and pieces that filter in give me that impression. Moreover, the rhetoric I hear around about China in the US just screams pre-Japan bubble burst flashback or something. In other words, I don’t have any nuanced reasons but I tend to agree with you to some degree.

    Last time I looked up patents coming out of China, there is simply a huge gap when compared to Japan and US, coupled with Eric’s point about Chinese imports from Japan – I think it will take more time for China to hit the same kind of innovative stride, but its not the distant future. Moreover, if it is in green technologies (who would have thought that 5 years ago…) then that will be big.

  13. There is a patent gap, but China is closing it quickly. Take a look at this WIPO report. Filings at the Chinese patent office are skyrocketing, China-originated filings are rising at a rate faster than Japan, and China now has a filing:GDP ratio third to only Japan and South Korea — slightly higher than the USA, although note that they adjust GDP for purchasing power parity which arguably inflates China’s GDP to some extent.

  14. I don’t want to actually play the prediction game regarding China as economics in general is not my specialty, and I know far less about the internals of the Chinese economy than I do about the US or Japan, but there is something suspicious about the fact that they have managed to maintain similar levels of GDP growth while every other country in the world has faced significant slowdowns, or contraction, in the current economic crisis. While long-term I do expect that all of the recent mega-construction in the cities WILL in fact eventually be used, as the country still has a huge population of rural, peasants that will eventually urbanize, I still don’t understand how they have avoided a real estate bubble in the short term.

    Certainly there has been a stimulus effect from a massive Keynesian plan of capital construction, but it mostly seems to have been an acceleration of projects that were already being planned. While I suppose that if the rest of the world recovers within a year or two then China can resume exporting at previous levels at about the same time the effect of their accelerated infrastructure building project wears off, it is also very possible that the timelines won’t match up and they will still experience a period of slower growth. Yes, their growth rate has been so high that actual recession (i.e. shrinking GDP) seems highly unlikely, but it still seems very likely that growth in specific areas will still be low enough to trigger a significant downturn in the real estate market – particularly commercial – at some point in the next few years. (And don’t forget they recently had a major stock bubble, which I believe burst before the worldwide crisis hit. However, it probably didn’t have as much impact on actual investment as it would in most countries, since so much investment planning is still executed by the government, or government-owned corporations.)

    The other problem I see for Chinese economic development in the near future was touched on above, when MatthewD mentioned the lack of patents coming out of China. While China has made enormous improvements in their infrastructure and industrial ability, they still don’t seem to be doing much innovation at present. Most high-tech manufacturing is a joint venture with Japan, America, or Taiwan-and they are being particularly aggressive about trying to draw Taiwan, with its world-leading expertise in electronics manufacturing (particularly silicon) and industry in general, deeper and deeper into their economic orbit.

    Increasing China’s competitiveness in high-tech fields will require massive amounts of improvement in their university system to add significant amounts of actual research on top of just training, which they are actually working very hard on. However, the best way for China to develop their scientific R&D infrastructure is to leverage the many, many Chinese scientists and engineers who have studied abroad, often emigrated or naturalized in other countries. While I expect many China-born researchers around the world are intrigued by China’s rapid growth and more likely to return due to rapidly improving standards of living, the weak and arbitrary rule of law, and limited freedom of expression, is probably the biggest thing keeping their expatriot citizens and former citizens away.

    I am particularly thinking of the case of Hu Zhicheng, an American citizen and automotive engineer originally from China, who it was recently revealed has been held for more than a year in China, following a mysterious business dispute with a former business partner.


    I suspect that when Mr. Hu is released from prison, he will leave China ASAP, and not return until he is convinced that their justice system has made some VERY significant improvements. And that will likely be a far bigger loss for China than for Mr. Hu, who has dozens of patents with his name on them including some very significant looking ones that have been cited dozens of times.

  15. I basically agree with all of Roy’s points above, but I think there are some missing links between them. The key problem is extrapolating the bubble cities like Shanghai and Shenzhen out across all of China when those cities only account for a fraction of its population and are going to account for less and less of its overall economic growth as time goes on, much as the northeastern US stagnated after World War II but the southern and western parts grew dramatically.

    One of my favorite pieces on macroeconomics is this summary of Jane Jacobs’ city-centered economic theory written by the awesome (and totally amateur) quasi-blogger Mark Rosenfelder. This passage is particularly pertinent to thinking about China:

    The engine Jacobs finds for all economic life is import replacement. She illustrates this with the beginnings of industrial life in Japan. Starting in the late 1800s, Japan imported bicycles. Repair shops sprang up in Tokyo, at first cannibalizing broken bicycles for parts. When enough of these existed, workshops started producing some of the most-used parts locally. More and more parts were made, until ultimately Tokyo could produce its own bicycles and export them to other Japanese cities– where the whole process was triggered in turn.

    This process not only creates work, it creates expertise and innovation: cities learn how to solve problems in new ways, and transfer the experience of building one thing to another. And it creates wealth: with import replacement, the city becomes richer, because it not only still has what it used to import (bicycles, in the example), but it can now afford new, pricier imports.

    This is how every developed nation started– Europe, America, the young economies of Asia; there is no other way.

    You’ll see that many China analysts are focusing on a gradual shift from exporting to producing for the domestic market, which is growing in leaps and bounds.

    For what it’s worth, China has made enormous strides over the last few years in strengthening the rule of law pertaining to businesses (at least if you believe the China Law Blog, one of the best China blogs *and* law blogs out there in my opinion). There is still a lot of corruption, but then again, there is a lot of corruption in the developed world as well. The criminal justice system still seems to be a huge problem, but the Chinese authorities are aware that both foreign and domestic eyes are on this, and they are taking some baby steps toward reforming it as well.

    There is also anecdotal evidence that China will pull in more and more marginal income from overseas investments of its own, particularly in Africa and South America, much like the network Japan developed during the postwar era. There are far too many parallels to ignore even if the core systems seem very different.

  16. There is an interesting essay by R. Taggart Murphy on Japan Focus that, though it’s a little dated (he wrote it in Oct. of 2008), gives an interesting overview of the furtive collusion that’s gone on between the U.S. and certain Asian countries that eventually led to the recent meltdown of America’s finacial system. I particularly like this quote:

    “Like an alcoholic’s wife who furtively keeps her husband plied with booze while managing to avoid thinking about exactly what she is doing, Asia has long facilitated the U.S. addiction to drowning its problems in endless dollar cocktails.”


  17. Likewise, almost everything Joe said is true. That’s why all of my doom and gloom predictions in the above comment are both tentative and short-term. There may be significant real estate bubbles coming up, but that real estate will still be useful down the line. In the same way, I very much expect that China will continue to reform their legal system over the coming years, and that even if there is a significant chance that the level of political freedom never reaches that of say, Japan, or Taiwan, or even China’s very own Hong Kong, it’s possible that they could get to the point where at least situations like that of Hu Zhicheng become close to unthinkable in- I don’t know, 10 years? 20 years? 30?

    The part I would disagree with somewhat is:

    The key problem is extrapolating the bubble cities like Shanghai and Shenzhen out across all of China when those cities only account for a fraction of its population and are going to account for less and less of its overall economic growth as time goes on, much as the northeastern US stagnated after World War II but the southern and western parts grew dramatically.

    While China’s interior still has a LOT of development to go, the population and wealth is always going to far, far more concentrated in the East than it has been in the US due to the harsh facts of geography.

    Most of China’s West is simply too barren to ever support significant populations in a comparable way. While the American SW and much of California is also desert, at least they have major rivers close enough to draw from, which simply isn’t the case in, say, Xinjiang.And let’s also remember that the main reason that California became a population and economic center (at least once the gold ran out) is their coastal location, with all the benefits accrued from facing the Pacific.

    By contrast, China’s West faces the sparsely populated countries of Central Asia and some of the less populated parts of Russia. While trade along that portion of the former silk road does remain vibrant, it is very much regional and is never going to spur REALLY significant settlement. Sure, the central provinces have a huge amount of development left to go, and the Western provinces have a good amount as well, but in terms of relative economic importance, the Chinese coast is still going to remain overwhelmingly dominant in a way that the American Northeast failed to. Also remember that the modern settlement of America began in the Northeast and moved West because that’s the direction it started in. China, on the other hand, began further inland along the Yellow river, and while that region remains a population center today, the dominant economic center shifted to its present location, diffused along the East coast, due to better transportation and other natural resources.

  18. Interesting article here on Chinese infrastructure investment and growth, from about 2 weeks ago.


    Investment in fixed assets like factories and the rail network accounted for more than 95 percent of China’s 7.7 percent growth in the first three quarters of 2009 and made up 45 percent of gross domestic product, which is higher than any major economy in history, according to Stephen Roach, chairman of Morgan Stanley Asia.

    Without a surge in consumer spending and with export growth stalled, investment must rise even further to stoke growth, he said in a Dec. 18 speech in Beijing.

    “These are ridiculous, unsustainable numbers for any economy,” Mr. Roach said.

    China may be hit with a slowdown next year as the impact of the investment-led expansion wears off and shipments to the United States, the traditional external source of growth, fail to pick up, Mr. Roach said in an October report. He did not specify how much he thought growth might slow.

    Well, I’m still looking forward to riding all the new Chinese high speed trains.

  19. …unlike Chinese people.

    Yeah, I’m not deluding myself into thinking that Urumqi is the future, but there are many secondary cities and regions of China where development is just kicking off. These areas have a long way to go and are already getting lots of infrastructure investment that previously would have gone to places like Guangzhou. The party in China is definitely far from over.

  20. Agreed with Joe, one of the advantages of a state’run economy is that they can choose where to invest arbitrarily, and the government is investing heavily in the west (Sichuan, Shaanxi, etc.) China can play the catch-up game for centuries, its that big.

    Aceface, no reaction from the japanese government? I´d think China would be cautious about Japan, they always say that if japanese companies employ a third of the workforce there.

  21. I am just going to touch on a few things: I hadn’t looked at any patent stats since a year ago (which might have been 2007 stats like those in the report – I do not remember entirely), but what I do remember is that Hong Kong, Taiwan, and China were all separate. I doubt the WIPO is including Taiwan in China, but that is problematic for another reason, because I remember Taiwan having a significant amount of patents coming out in relation to China (PRC) so it begs the question why is Taiwan not represented on the graphs. Later on, Hong Kong is shown separate from China (from patent office origin section) so maybe it is not included in the first graphs.

    Moreover, I was wondering – what is the distribution of these patents coming out of China, but I decided I was too lazy to look it up right now. Luckily I came across it randomly anyway. Industrial design patents – of the 512k ID patents filed in 2007, 134144~ of those were from China, which accounts for over 50% of China’s total patents filed in 2007. So most patents coming from China are for industrial design and therefore manufacturing centered – which should not be surprising. It at least throws some shadow of doubt, I could go deeper into that document but I am not an expert, and I am sleepy…

    Nonetheless, potential is there obviously, but if anyone can read the future here they would obviously be much richer.

    As far as Rule of Law goes: the amount of funding available (from the U.S. gov. grant-making organizations) for enhancing rule of law has been increasing a lot in the past few years, partially at the request of the State Dept. A smaller NGO I was working for in DC has a small rule of law program that they do once a year that started a couple years ago, but as of late it seems like the money for these programs is becoming much more available. Naturally, rule of law is important for industrial design…because I believe it is an intellectual property right, which China is not famous for being able to regulate and protect iirc.

    Just an aside, I was in Chinatown having lunch with an intern worked with and her boyfriend who just got back from studying abroad in Beijing. I forget how it came up, but the issue of urban growth came out and he started on about it a bubble starting in Beijing. Reminded me of this post heh.

  22. I’m rather baffled myself as to why Taiwan isn’t included, since they are a member of WIPO as a “separate customs territory,” and should therefore be tabulated. While they probably have far fewer patents than PRC as of 2008, considering their considerable engineering talent I bet they would still have more patents than many of the countries/territories listed in that document, including Hong Kong.

  23. Taiwan is not a WIPO member, Roy, and WIPO doesn’t have “customs territory” membership. You’re probably thinking of the WTO.

    Comparing Taiwanese patent filing reports to the WIPO report, it looks like Taiwan was left out of the WIPO report entirely rather than lumped in with China. In 2008 83,613 patents were filed in Taiwan and 42,366 were approved (official statistics). Compare to China’s 250,000, but these stats are counting filings in the country by all nationalities, not worldwide filings by Taiwanese inventors (which are harder to find if WIPO is not actively collating them).

  24. Oops. That’s right. Taiwan isn’t in the WIPO at all, which explains perfectly why they were left out of the report. While China has several times as many patents as Taiwan, considered on a per capita basis the Taiwan numbers are pretty damn high.

  25. Of course, I forgot that WIPO is actually part of the UN and not an independent treaty organization like the WTO. Taiwan has been excluded from all UN organizations since Chiang Kai Shek’s inexplicably bone-headed diplomacy that allowed the PRC to replace the ROC on the security council. And with the PRC wanting the China seat so badly, it would have been SO easy at that point for Taiwan to join the UN as a properly recognized independent state instead of just walking away…

  26. 2009 GDP estimates for JPN are 522 trillion yen, and 14.261 trillion US$ for the US. One US$ is about 90.6 yen.

    The ratio GDP JPN/GDP US is thus about 40%, much higher that 34% suggested in the picture.

  27. The exchange rate has fluctuated between 85 yen and 105 yen over the past year, while the Chinese RMB is very nearly a constant rate to the dollar. You can’t expect the graph to be adjusted every single day.

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