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Can US economy thrive as China rises?

The US economy retains top status, but Beijing's economic engine is shrewdly built – and set to propel China forward fast.

By staff writer / February 7, 2011

A Chinese container ship sat docked at the Port of Oakland, in California, last month. Some US economists worry that other nations’ rapid catch-up on trade could come at America’s expense.

Beck Diefenbach/Reuters

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President Obama's recent State of the Union speech carried a blunt message: Continued US prosperity depends on figuring out how to stay ahead of other nations that are out to eat America's lunch.

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It's a theme that Mr. Obama has continued to hammer over the past week, and he cites China as a prime challenger -- a nation that's now home to the world's fastest computer and largest private solar-research site.

When it comes to China, many Americans agree. Some 47 percent now see it as the world's leading economic power, according to a January poll by the Pew Research Center. Only 31 percent chose the United States.

So just how big an economic threat is China? Is this really a "Sputnik moment" for America, as the president said? The challenge to America is real, but it also shouldn't be exaggerated. The notion that China is already No. 1 is flatly wrong, most economists and Asia experts say.

"It's a gross misperception," says Robert Sutter, a China specialist at Georgetown University. China is "just not a dominant economy."

Measured in dollar value of output, the US economy is still more than twice the size of China's. And because the US population is about one-quarter that of China, this means the typical person in China has a living standard far below US norms.

If you had to pick a global economic superpower, it's still America.

China's manufacturing is also much less efficient, using far more energy than advanced nations do to produce a given product. And more than half of China's foreign trade, Professor Sutter says, is controlled by foreign firms operating there.

All that said, China is undeniably a force to be reckoned with. It appears to be just a matter of time before China does have the largest economy. Unlike the Soviet Union, which sent the Sputnik satellite into space and later saw its economy unravel, China has built its growing might on a blend of shrewd government guidance, home-grown entrepreneurial drive, and partnerships with the outside world.

China's growth rate isn't remarkable compared with that of other East Asian nations. But its huge population makes China more important – and its government has used that marketplace leverage to lure multinational firms and to arrange for the transfer of valuable know-how in joint ventures. That raises the prospect that China may catch up with the developed world faster than anyone expected.

"Those concerns are legitimate," says Matthew Slaughter, a Dartmouth College economist who specializes in trade issues. In many industries, from automobiles to aerospace, China's advance "has surprised business leaders [and US] government leaders."

According to a 2010 United Nations survey, China is the world's most popular destination for multinational corporations' investment in new factories and other facilities, while India and Brazil bumped the US from second place (in 2009) to fourth.

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