China and the World

So all the talk has been about China and its increasing rank in the world’s economic super powers. Just today (February 14, 2011), Japan released its Q4 GDP report which formalized the fact that China is now the world’s second largest economy by GDP.

This is quite a significant leap for a country that has often been looked upon as a place to simply outsource your labor onto. However, with China’s control on rare-earth commodities like neodymium, its increasing middle class, as well as its population muscle power–it seems like China is going to soon obliterate the decades-old perspectives that others have about the ancient country.

What does this mean for the global economy? Well, for one thing, people will have to pay more attention to China–politically and financially. With recent photographs of China’s new built-from-the-ground-up stealth fighter named the J-20 Prototype, it is clear that China has the not only the manpower, but the knowledge to support its rise to power, as manufacturing a stealth aircraft fighter from the ground up is one of the most sophisticated tasks in terms of national defense.

Then comes the commodities. China controls nearly 90% of the world’s neodymium output. Neodymium is a rare earth metal which is used for its strong magnetic properties. You can find neodymium in many appliances and operations–from the dynamic driver speaker in your earphones to the motor of a hybrid vehicle. In fact, many hybrid cars or complete electric vehicles depend heavily on neodymium for their parts–a problem due to the fact that this metal is controlled largely by China. This means price increases on hybrid and electric vehicles, such as Chevrolet’s new Volt. And with China limiting their annual neodymium output, getting your hands on the rare metal can be more of a concern of yield than price.

China clearly has a lot ahead. Projections by many financial firms forecast that China’s GDP will overtake the United States in the next 20-30 years, a significant landmark by any country. Currently, if China and Japan’s GDP’s are combined, they do not equal the boastful ~$14 trillion GDP of the U.S. However, this is what makes the #1 GDP spot such a landmark to break. And with China just surpassing Japan–a country with familiar names such as Sony, Honda, Toshiba, and Toyota–the long-term tensions between the two countries may have to settle purely for economic reasons. In 2007, China surpassed the U.S. in terms of receiving the most exports from Japan–another indicator that close ties are required between the two prominent east-asian countries in order to maintain economic balance. In the race for the #1 GDP spot, it seems that everyone is contending.

What does China’s position in the world mean today? Second largest GDP country in the world, growing middle class, largest luxury car importer, and a population more than triple that of the U.S. It means power; power in a long-winding race for economies of the world.

And in this race, it seems like the entire world has their eyes on what was once the underdog for decades: China.

-Salman