Russia and China successfully fight for own piece of the global economic profit. This fight may come to a hot stage

In our previous posts, we formulated and illustrated the idea that the countries with larger annual increment of the real GDP per capita, GDPpc, are also characterized by the CPI growing faster than the GDP deflator. The most striking examples of such dependence are the USA and Japan. In support of these observations, the most unsuccessful countries with low annual GDPpc increment are characterized by faster growth in the GDP deflator, e.g. Italy.

In this post, we analyze Russia and China within the same framework. Figure 1 compares both countries with Germany for the period between 1995 and 2018. The OECD provides dGDP data for this period and Russia started an independent economic history in 1991. In addition, the drop in real GDP between 1991 and 1998 in Russia was related to the transition from socialism to capitalism. The curves in Figure 1 demonstrate that all three countries were successful in real economic growth since 1995 and can be considered as having the “strength” needed to participate in the division of global profit. Obviously, there are several countries fighting for the global/regional economic dominance and the highest benefits in non-equivalent exchange of goods and services, which is called robbery in normal life. Just a few countries have the potential to continue with (nuclear) armed brigandage. In the world of shrinking marginal profit, these countries will likely be the winners in the future Darwinian competition.  

Figure 1. Annual increment of the real GDP per capita in Germany, Russia, and China between 1995 and 2018. The average increments are presented. All three countries belong to the club of successful economies since 1995. 

There is an important signature of a successful economic player – CPI curve above the dGDP one. Figures 2 and 3 present these curves for China and Russia. Within the limited period since 1993, China has a segment with the dGDP above the CPI curve, but since 2004 the situation is the opposite and the CPI is growing faster. For Russia, the CPI and dGDP were very close before 2004, and then the same pattern as in China and other successful economies is observed. 

Therefore, China and Russia are two countries that definitely joined the club of economies with large enough “strength” to participate in the process of division of global economic profit. The club extension is not welcome by the old club members and we currently observe the fight for dominance. Potentially, it may go to a hot war stage, and nowadays is the best time to check that “gunpowder is dry”. Marx said - “ …100 percent will make it ready to trample on all human laws; 300 percent, and there is not a crime at which it will scruple, nor a risk it will not run, even to the chance of its owner being hanged.”  

Figure 2. CPI and dGDP price growth in China since 1993 (OECD data available)

Figure 3. CPI and dGDP price growth in Russia since 1995 (OECD data available)