We are beginning to see Chinese firms outperform the broad market. The Chinese online video gamers, Perfect World and Changyou.com (PWRD & CYOU) each shot up 10% in heavy volume on Monday July 20, 2009. Another gamer Shanda Interactive (SNDA) shot up as well. Chinese based software outsource firm Vanceinfo Technologies surged 14%. Fortune’s 2008 annual list of top 500 Global companies show that more Chinese companies are in the top 500 than ever before representing 7% or 37 companies and the US firms represented on the Fortune list are at their lowest point ever with 140 companies just above 25%.
The post-war USA became dominant during the 1950s and 1960s because of its tremendous growth rates exceeding 10%. Since its boom years, the real growth rate of the United States has persistently declined during the last three decades. And in the latest decade we have seen growth rates of no more than 3.0% or less. Of course this excludes 2008 and 2009 which have seen huge negative numbers in GDP reaching a negative -6%.
GDP growth is the fuel that generates increasing revenue, improving profits, enhanced tax revenue and the ability to pay down debt. Currently, the USA sees itself as increasing its debt substantially in the trillions of dollars and growth rates are not expected to exceed 1% or 2% for the foreseeable future. This will mean little or no capacity to pay down significant debt, generate increased tax revenue and fund health care and many other initiatives.
This scenario makes clear that the USA will be a huge debtor nation in the future with little capacity to deal with its debt while trying to be the world’s security force and provide aid to all those that need it. We can see ourselves owing tens of trillions of dollars to countries that fund our debt such as China and Japan and we can certainly envision interest rates going up significantly in the future which would put a choke hold on our ability to borrow more or have the flexibility to fund new and important initiatives in the USA.
Meanwhile despite the global recession, Chinas economy grew 7.9% in Q2 2009 from a year earlier. Credit Suisse predicts China will grow 8% annually in 2009 and 9% in 2010. With this kind of sustained economic growth and demonstrated corporate performance, China may be the emerging frontier for decades to come. China is already planning to take a larger role in the global marketplace. Economist Arthur Kroeber wrote on the China Economic Quarterly that China’s economy is poised to keep growing for at least two more decades. Ming-Jer Chen, professor of business administration at the University of Virginia’s Darden School of Business, says “the surge in Chinese foreign direct investment and takeovers is another sign they’re on track to play a larger role in the global marketplace. The value of Chinese foreign mergers and acquisitions grew at a compound annual growth rate of 51% from 2002 and 2008. Outward foreign direct investment from China also doubled to around $20 billion in 2008 while global foreign direct investment fell by 20%.”
Not only can we see a clear plan for China to be an emerging powerhouse in the global economy from a producing nation and an investor nation but also to potentially be the stable currency of choice by the year 2030. Chinas foreign direct investments all over the globe will also provide them with a global reach for customers, investments and potential currency stabilization worldwide.
It’s also easy to envision Chinese companies dominating the Fortune global 500 within the next decade or two. There are many Chinese companies poised for entry such as Gome Electrical Appliance, one of chinas largest appliance retailers at $43 billion. Another is Ping An Insurance, china’s largest private insurer. Telecom equipment provider Huawei with $23 billion sales. Huaweii was named the world’s leading patent seeker in 2009. Others potentially in the lineup are: Minsheng Bank, Mengniu Dairy and Yili Group.
China’s comprehensive plan provides an easy path to understand the potential for their global reach and the potentially dominant position it can take in the Fortune global 500 but also have a real world impact. It’s difficult to see the USA’s path with the same passion and credibility that the Chinese proffer.
