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May 25, 2007

China military will naturally be big, modern and global

A bunch of articles in the regular press are like this one from the International Herald Tribune. They talk about US defence concerns about China's military spending and modernization

I have already laid out a reasonable, plausible and I think likely scenario where China becomes the number one world economy on an exchange rate basis by 2020.


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China economic trajectory naturally lets it accumulate friendships with country and hanger on countries.

All kinds of countries and companies are tying themselves to China's rising economic star. (ASEAN etc...) China also seeks out places (Iran, Nigeria) for resources (oil)

A 25% increase in currency valuation looks like a super slam dunk over the next 3 years. The potential of the trade surplus going to 400 billion will force China to revalue the Yuan more quickly to offset the speculative pressure and prevent harm to their own economy.

If my predictions on China's economic size are right then China and the US would become : like Japan-US (China being a distant number 2, initially a co-number 2 with Japan) from 2008-2013; then more like EU - US (roughly the same size) from 2015-2024; then if it continues where the US is half the size of China it becomes like Japan-US with the roles reversed and the US as the junior partner.

The pre-emptive strategy and force projection talk looks like it is coming from US defence and intelligence interests and think tanks. I see it all as posturing and ensuring that their own [US] budgets are larger.

If China expands to 70-100% of the size of the US in straight currency in 2015-2020.
then Military spending proportionally increases and modernization (buy new military toys) also happens.

Current defence budget is estimated at $45-100 billion for China.
25% currency bump (3 years) pushes those numbers to $60-125 billion.
Plus a three year economic growth of about 30%.
Same proportion would put spending at $78-165 billion.

The EU had an extra 65% runup in military spending when compared in US$ over the last seven years. It is what happens when your currency turns to crap.

I am projecting China in 2015 to have a 11.1 trillion economy including Hong Kong.
A proportional military spend would have China at about $200-300 billion.

The US will be about 17 trillion.
Military spending could be at $500-700 billion for the USA.

In 2020, China would be at 21 trillion and the US at 20 trillion.
Military spending would be about $400-500 billion for China and the US at $600-900 billion. China's technology is also catching up to the US. China will have three petaflop class supercomputers and a supercomputer grid in 2010 This will be comparable to what the US will have at that time.

From 2015 through 2020, then China would naturally have a pretty spiffy military and have force projection capabilities of global reach. However, why would either side start a war ? The US and China would be each others biggest trading partner. China would hold trillions in US assets. Owning 10-20% of so of the US would not be inconceivable. Why fight to take it over if the other guy is selling it to you at bargain prices ? There will be tense moments when the two are in competition for scarce resources like two neighbors in a mall at Christmas time jostling over a toy.

Taiwan, as indicated (in the previous article) looks headed to becoming a common market partner with China in 2008-2012. (Check and see if KMT Ma wins next year).

India would also be projected to catch up in 2030-2040 timeframe.
Post 2015-2025 could be different because of the changes in technology that I am projecting from technologies like molecular nanotechnology.

The US can defer this scenario by getting its financial house in order. The US can stop falling back by strengthening its currency. The US can no longer be sloppy and expect to stay on top or eventually near the top. (Although population wise the US could head to 500-600 million with loose immigration basically absorbing 20-40% of Mexico and a higher birthrate. 33-45% of China's population)

Losing economic strength will translate over a decade or so into lost military dominance. The USSR showed that a place can overachieve military status relative to economic strength for 4 decades or so against a 3 to 1 economic size disadvantage. But doing that just screws you up long term. Again there would be no point if neither side would gain anything in a fight. Plus the translation time for economic status to military status could be shorter with a transitioning technology scenario (see all of the molecular nanotechnology and other technology tracked and projected on this site).

A China economy that is nearly equal or greater than the USA will mean that China will have a military that is nearly as big or bigger than the USA. It will be modern because they will have bought or built everything new. It will have global reach because why would a country about the same size as the USA not have global reach. For that matter, even interplanetary reach with China's space program

The US needs to have more competent leadership, spending discipline, financial discipline if it wants to stay at number one or near number one. 2015-2025 real competition for world number one. Fortunately a likely economic and technology only competition.

2 comments:

Jonathan said...

"The US can no longer be sloppy and expect to stay on top"

I have seen nothing but irresponsible fiscal policies all my life. In fact it just seems to get worse and worse for the USA. I would be very surprised if the USA could get out of their downward spiral in the near future.

One of the biggest threats I have seen is the budget deficit, although I am no economy expect... What kind of things can the US do to strengthen its currency?

bw said...

Here is an article which talks about currency strength

http://engram-backtalk.blogspot.com/2007/04/why-is-euro-strong-vs-dollar.html

The primary factors usually listed for a strong currency are inflation under control, higher interest rates (more potential for return), more demand for the currency (other countries need your currency for imports -so they hold more in reserves), less supply relative to demand (monetary policy, how much money are you printing), expectations (what investors expect you to do in the future to effect your economic health and money.)