IT IS NOW ALMOST AXIOMATIC to assert that China is fast emerging as the world’s leading economy, and that the American Millennium is at last coming to an end.

In 2007, China, with a GDP of $3.42 trillion, was the third largest economy in the world, after the United States and Japan. If its current phenomenal rates of economic growth are sustained, China will soon become the world’s largest economy.

Are the world’s economic centers of gravity truly shifting away from the United States and Europe toward China, and to lesser extents, India and Brazil?

In a very important sense, yes. In terms of the sheer size of their economies, and the tremendous rates at which they have been growing, these countries have truly become economic powers to reckon with. If these trends continue -- a big if -- China will soon be the world’s dominant economic power.

That China has become an economic giant by the usual performance metrics is beyond doubt. However, signs of strain are beginning to show.

The economic dynamics that brought China to its present position of dominance seems to have reached a point of diminishing returns. Economic and social inequities and resource constraints are beginning to take their toll. Moreover, China lags far behind the West in its capacity for product innovation.

These developments pose serious implications for all other countries, especially the developing ones in Asia and Africa, which must now scurry to establish beachheads with new trading partners. However, as Bloomberg News Columnist William Pesek has noted, China’s phenomenal ascent may either be a curse or a cure, and that both risks and opportunities abound.

(This, and other current global economic issues will be one of the topics that will be covered in the 7th International CEO Conference sponsored by the Management Association of the Philippines which will be held on Oct. 6-7 at the Makati Shangri-La. Pesek is one of 11 speakers at this conference.)

The question that I pose now is: Is the economic dominance of the United States truly waning? My own thinking is that America’s supposed impending decline as a global economic power is a gross overstatement. Here are my reasons:

Mere size and rate of growth of GDP do not tell the whole story. As Nobel Laureate Joseph Stiglitz has observed, economists have yet to learn how to factor negative externalities (consider the damage that China is doing to its environment!) and intangibles (economic value arising mainly from investment in and production of knowledge and information goods) into their national income accounts.

By these measures, China’s economic might has probably been somewhat exaggerated.

Moreover, when it comes to the “New Economy” and the value it generates from knowledge and information, China appears to be trailing the West. A quick tally of the current Fortune Global 500 indicates that cutting-edge technology in all newly emergent fields such as biotechnology, nanotechnology, alternative energy and ICT is still dominated by United States, European and Japanese corporations.

Basic research, the pacesetter for technological innovation, is taking place mainly on American university campuses and research institutes. The most recently available ranking of universities worldwide shows that 17 of the Top 20—including the first three—are American universities, two in the United Kingdom and one in Japan (www.arwu.org).

The highly regarded American Association for the Advancement of Science (AAAS) lists 120,000 individual and institutional members. For these reasons, I am not inclined to write off the United States as yet. There is reason to believe that Western economies are better poised for the emergent innovation-driven world of knowledge than are China, Brazil and India. I believe that the West will experience a major economic resurgence well within this generation.

In his column cited above (“China may be Africa’s Savior or its Curse”), William Pesek made mention of the “global commodity boom” as a driving force in today’s world economy. Many of today’s growing economies—China, including—are riding on this phenomenon.

My own thinking is that 25 years down the road, commodities will have lost their sizzle, and with it the “boom” that China (and Brazil, and Russia) are currently enjoying.

If I have 10 more years to live, I think I know where to place my bets.

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(This article reflects the personal opinion of the author and does not reflect the official stand of the Management Association of the Philippines. The author is an active academic and a knowledge management consultant. Feedback at map@globelines.com.ph. For previous articles, please visit map.org.ph.)

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