1 photos
Photo to accompany Breadman's post
Breadman asked me to reduce the size of this photo and upload it to accompany the preceding post.
One last post, at least from me, on the Chinese vs USA economies
After the exchange of reports on China and its economy I started thinking, something I seem to do less of and more poorly than I once did. I thought back to the relative size of the Chinese and US economies about five years ago, which is when I was last keeping track of such and did some quick math in my head, adjusting both for growth over the past five years. Intentionally I probably over estimated China's growth and underestimated the US growth. My conclusion was either I am crazy or the claim that China's economy will soon pass the US economy is crazy. So I decided to look for the origin of the claim that China will soon surpass the US.
I found a story in the [I]Financial Times[/I] that stated,"China poised to pass US as world's leading economic power." This puzzled me because I think of the [I]FT[/I] as a generally credible rag. Digging deeper I discovered the basis of this claim was a report released on April 29 by the World Bank. About every six years the WB releases an International Comparison Program report that compares the GDP of countries around the world. Ah ha! I found the problem. The WB report compare countries' GDP, adjusted for purchasing-power-parity (PPP) exchange rates, rather than market rates (currency exchange rates). This allows one to compare per capita income and measure people's living standards; but it does not measure the relative sizes of different countries' economies.
Using market exchange rates, today the US economy is 83% greater than China's economy. Depending on the assumptions one makes regarding the relative growth of the two economies and the appreciation of the renminbi, it will take China another 10 years, plus or minus to surpass the US. For example, over the past 30 years China has grown at an average of 10% per year; and the renminbi is appreciating at about 3% per year. If the 3% currency appreciation continues and the Chinese economy grows on average 5% faster per year than the US economy China will surpass the US in about 8 years.
A more disturbing aspect of the [I]FT[/I] Article is that it is misleading in another way. Even if you use the PPP adjusted data, it is still apparent that on a per capita basis China is still a relatively poor country, which is something the Chinese leadership constantly reminds the developed countries. China's per capita income is now somewhere in the middle of the 200 odd countries the World Bank tracks. Its economy is large because there are 1.3 billion relatively poor people living in China. In contrast there are 317 million relatively wealthy people living in the US. So in ten years or so when the Chinese economy surpasses the US economy in size, which country will be wealthier? To me the more important questions are how much wealthier will the average person in China be (much wealthier I hope); and how well will the average person in the US be faring.