The New Chinese Era


I first visited China in 1977. The London Times had arranged to take a group of businessmen from Britain to open up trade contacts. As Editor of The Times I was the Deputy Leader of the group and had to do a good deal of formal handshaking. Fortunately we were able to take our wives with us as part of the ceremonies of speaking and feasting.

It is now thirty two years since we made that visit. The change in China has been beyond belief. In 1977, China was still a land of bicycles and physical labour. It was also a land of absolute authoritarian orthodoxy. One would get on an aircraft, leaving behind an obsequious official, spouting the party line. One would disembark a thousand miles away, and be greeted by another official minder, repeating the same party line, almost without a pause.

People still criticise the monolithic power of the Chinese Communist Party, but the relative change is what strikes anyone who knew the old China. China may not respect civil rights or allow certain kinds of free political discussion, but the new China is inexorably much more open and free than the old China.

That is just as well, as it is becoming apparent that the resilience of the Chinese economy is the world’s best hope in the present depression. If one looks at the reaction to recession of the United States, Germany and China, one is impressed by the strength and confidence of the Chinese response. I would list the three powers in the order of China, the United States and Germany, for their contribution to the process of world recovery.

Joseph Schumpeter analysed the Great Depression in terms of “creative destruction”. He thought that cyclical recessions and depressions wiped away obsolete economic systems and allowed them to be replaced by fresh structures. Recessions are necessary to speed up the capitalist forces of change.

For the last 33 years, the Chinese economy has been growing two to three times as fast as the United States, and that has continued even in a year of recession. The Asian economy has been taking over the lead from the Western economy, though the performance of the Japanese economy has been disappointing.

I expect that this Chinese outperformance will continue as the world moves into recovery. We can now see the pattern of the three centuries: 1815-1914 the British Empire; 1945-2008, the American era; about 2030 -2100 or beyond, the new Chinese era. China is overtaking the West and the process has been accelerated by the recession.

William Rees-Mogg
for The Daily Reckoning Australia

William Rees-Mogg
Leading political editor William Rees-Mogg is former editor-in-chief for The Times and a member of the House of Lords. He has been credited with accurately forecasting glasnost and the fall of the Berlin Wall – as well as the 1987 crash. His political commentary appears in The Times every Monday. His financial insights can only be found in the Fleet Street Letter, the UK's longest-running investment newsletter.


  1. “China is overtaking the West and the process has been accelerated by the recession.”

    Is that right William? Such bold claims with not too much backing too them. Perhaps I should go buy myself some Chinese stocks on your advice then? I will tell my colleagues “i’m backing China, because China of today is different to China 30 years ago”.

    Seriously though, you are calling waaaay too soon. This is akin to officials and experts here in Australia saying that our Real Estate bubble has strong support, because ‘it has not deflated yet, and everyone elses has’. How about we wait a little while and see where we are all at then. Maybe China won’t be so rich when the USD is worth nothing.

  2. Pete if the USD is to be worth nothing the capital generating/exporting country’s savings get extinguished and they were generally leveraged in USD into those USD assets too so thats one big kabbam!

    As the global reserve/trade finance currency you are also talking about an implosion in trade and the underlying trade credit even if it devalues significantly. So you yourself are taking a big leap calling it to be “worth nothing”. The difference is the reserve status, technically the US can print lots in the domestic economy.

    China was so inefficient & lazy in the old days, my dealing started in the mid 80’s, with all the fervour going into rules & beating people up. It is still a mix of the productive and unproductive but the rate of increase in efficiency across the economy and the scale of what they can marshall makes it a place that you can’t write off as long as it stays stable. Agricultural reform and rural regional city services employment is key.

  3. I can’t help but laugh at someone who says things like

    “….Such bold claims with not too much backing too them”

    and then

    “Maybe China won’t be so rich when the USD is worth nothing”

    classic thought process of a muppet.

    March 6, 2009
  4. what will China do? First it will use reserve currency try to buy most Australian resourse as it can because Australia to close to China, safety to transport and shortest way to protect when necessary.
    At the same time China try to help the dictated african governments, the countries which rich resource, in order to get cheap material.
    Second, China will determine to develop heavy industry such as weapon, airplanes, tanks, battle ships, submarines, etc…at the same time China will try interfere, with intention to control most south east asian contries then to Australia. No one know if It will occupy Australia then immigrate masses chinese to Autralia.
    In 70’s decade, Mao said:” Divide the world into three parts. One gives to Europe, One gives to US and we keep one”. But it isn’t necessary now because the world is waiting for China’s rule.

  5. The one-child policy will ruin China. It may have been necesary, but the generation which grew China, is no the same as the one which is going to inherit it. Spolit children do not hard workers make. China also has a massive ideological contradiction. The rural who are going out of work, will exploit the idea that the Communists are not Communists. I see China imploding in a worse way than the US or Britain will.

    The new world leader? The federation of Gondwanaland comprising mostly Southern Hemisphere countries and India under a single currency. ok. So its far-fetched. But then so is people on the moon.

  6. In the bubble after the 1987 crash it was Japan that was going to overtake the US – didn’t happen.

    In the bubble after the crash it was China that was going to overtake the US – won’t happen.

    China is going to collapse into anarchy and/or civil war and most likely balkanise, as with the US.

    History does suggests to look East, but from an American geographical position, for a brief reign of the entity to replace American hegemony.
    “Every modern transition of world power supremacy has involved an ally or former colony of the previous hegemonic power” (James Davidson & William Rees-Mogg, The Great Reckoning, p.137).

    United Provinces of the Netherlands (Protestant) then United Kingdom of Great Britain and Ireland (Protestant) now United States of America (Protestant) next United States of Europe (Catholic).

    “The 1990s should be seen as but a temporary interlude between eras of cosmic competition. And America’s allies in the last round (against the Soviet Union) are shaping up as opponents in the new one” (Daniel Pipes, Europe vs. America,, January 21, 2003).

    “History is coming full circle. After breaking away from the British Empire, the United States came together as a unitary federation, emerged as a leading nation, and eventually eclipsed Europe’s Great Powers. It is now Europe’s turn to ascend and break away from an America that refuses to surrender its privileges of primacy. Europe will inevitably rise up as America’s principal competitor… Should they fail … to prepare for life after Pax Americana, they will ensure that the coming clash of civilizations will be not between the West and the rest but within a West divided against itself… and America remains largely oblivious [and Daily Reckoning readers]” (Charles A. Kupchan, The End of the West, The Atlantic Monthly, November 2002, p.42-44).

    (Below disjointed due to limit of 800 words).


    “Lars Christensen, head of emerging-market strategy at Danske Bank A/S in Copenhagen … said. “The markets have decided the central and eastern European region is the subprime area of Europe.” (Laura Cochrane, Downgrades Loom for Hungary, Poland, Czech Bonds, Yields Show,, February 18, 2009).

    “The deterioration of the situation in Europe added to the problems of the American authorities. In May 1931 the Credit Anstalt of Vienna was obliged to close and the German banks to which it was heavily indebted were soon in difficulties. They could not meet their short obligations to London, and this frightened other Europeans, especially the French, into withdrawing their balances from Britain. By September England had lost so much of its gold reserve that it was forced to devaluate the pound, an action that set off a series of devaluations around the world…” (Margaret Myers, A Financial History of the United States, p.306).

    “… the psychology of fear was rapidly overflowing international frontiers… It now washed over the United States…” (David Kennedy, Freedom from Fear, pp.76-77).

    “The depression of 1929 is the wrong model for the current economic crisis” (Scott Reynolds Nelson, Professor of history at the College of William and Mary, The Real Great Depression,, October 17, 2008).

    “.. once Germany was united in 1871, it forged close economic links with the countries of Eastern Europe” (Norman Davies, Europe: A History, p.765).

    “Combined with the euphoria over unification, these changes led to an unprecedented boom between 1870 and 1873… Tens of thousands of Germans invested in stock for the first time” (EB, German Empire, 1871-1914: The economy 1870-90).

    “In May 1873 the speculative mania in eastern and central Europe broke in Vienna, and the panic spread to Germany. On 18 September New York was struck by the failure of Messrs Jay Cooke and Co., long the governments loan contractor, bringing down with it other titans of the financial scene, all more or less involved in railway speculation… European difficulties took increasing toll as liquidation spread…” (S.G. Checkland, The Rise of Industrial Society in England 1815-85, p.49).

    “[The] halcyon years came to an abrupt end with the onset of a worldwide depression in 1873… A sharp decline in profits and investment opportunities persisted until the mid-1890s…

    “In adjusting to the “Great Depression,” Germany’s leaders chose to return to a regulated or administered economy, after a generation of increasingly free trade” (EB, Germany: The economy 1870-90).

    “The speed of Germany’s advance to industrial maturity after 1890 was breathtaking…” (EB, Germany: Economy 1890-1914).

    “…it is no coincidence that World War I started when it did… The Great War then became a test of strength between two powers. Similar global wars had been fought in the past almost every time a hegemonic power was displaced and a new world order created…. the Pax Britannica was over” (James Dale Davidson & William Rees-Mogg, Blood in the Streets, pp.65-66).

    Pax Europa to replace Pax Americana?

  7. Europe is doing a USSR. It will implode due the huge productivity & banking regulation disparity in the Eurozone (which must be seen to incorporate all those east european countries with access to euro denominated borrowing & fixing rates even if they still nominally run their own currency). Ukraine, the caucases and the baltics are also just the same total basket cases they were when they were within the ussr.

  8. I also believe that the present European Union will collapse. When I look at Europe I see the Weimar Republic.

    “… despite the myth of a reunited Europe, Europe has redivided along historical-civilizational patterns, with the recently expanded NATO a variation of the Western Holy Roman Empire…” (Robert Kaplan, The Coming Anarchy, p.182).

    Germany has an “ethnic concept of nationhood” [and] “still dreams of a Germanic Holy Roman Empire” and has yet to “recover from the aberration of Nazism” – Jean-Pierre Chevenement, French Interior Minister, May 2000.

    What I am more interested in is the political system, comprised of ten political entities, energized by a rejuvenated Roman Catholic Church, that will emerge from the Great Depression – something far superior to the Third Reich – a modern day Holy Roman Empire.

    “… Even when institutions are disintegrating and decaying, their leading ideas live on and reemerge, often in distorted and even horrendous forms. So it was that the Berlin-Rome axis came into being; the link was the Church. So it was that the Concordat between the Vatican and the Third Reich was signed. There was perhaps no basic difference between the attitudes of Pius XII to Hitler and Leo III to Charlemagne. “Heresies,” as Sir Thomas Brown wrote,

    “do not perish with their Authors, but like the river Arethusa, though they lose their currents in one place, they arise up again in another… Opinions do find, after certain Revolutions, men and minds like those that first begat them. To see ourselves again, we need not look for Plato’s year: every man is not only himself; there hath been many Diogenes, and as many Timons, though but few of that name; men are lived over again, the world is now as its was in Ages past, there was none then, but there hath been someone since that parallels him, and is, as it were, his revived self.

    “If this is true can we be sure that history has written finis to what was perhaps the grandest design ever conceived by man: the Holy Roman Empire?” (George Bailey, Germans: Biography of an Obsession p.360).

  9. The next world power will be the one that is best able to persue science and technology, Europe, bracketed by commenter Watcher7, Catholic, will indeed be held back by it’s adherance to religious code. Likewise the U.S., It’s religious dogmas have a stranglehold on society and the persuit of technology, they all belive God will provide, I don’t know why they don’t put their faith in themselves,as I’m sure they are all capable, but if the want to trust God to make their lives better so be it. So then who does that leave to be the world power, New Zealand Australia and the Cook Islands? Certainly not, it’s China of course silly!

    And another way of looking at it…… The greatest cities of the 19C- London and Paris, the greatest Cities of 20C- I think there was just one, New York, and the greatest cities of 21C- they will be Bejing and Shanghai.

  10. .

    The crushing of the Imperial Chinese state happened in 1860
    with the summer palace burning in the background , the Manchu dynasty
    signed the Beijing convention , in fact an abject surrender

    germane to the thread , the Opium wars were caused by the west trade imbalance with China , they didn’t really want anything from the west only silver was accepted .
    It couldn’t last the whole international trade was going to the dogs
    after the wars the forbidden city woke up to the desirability of western weapon technology .

    China is now totally dependent on sea borne trade,
    under the benevolent protection of the U.S. Navy

    there is a tide on the rise

    the people Army has been increasing its budget at ~ 15% a year for fifteen years , while the share of defense in the GDP has been relatively shrinking to 6%

    European powers are out of the race , Russia is very friendly
    that leave a budget beset U.S. to hold the fort

    ….for a while



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