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EasyRhino
12-30-2007, 06:31 PM
http://www.latimes.com/news/opinion/sunday/commentary/la-op-mead30dec30,0,1035099.story?coll=la-sunday-commentary


The great fall of China

Revised GDP calculations show that Beijing isn't the giant we thought it was.
By Walter Russell Mead
December 30, 2007
The most important story to come out of Washington recently had nothing to do with the endless presidential campaign. And although the media largely ignored it, the story changes the world.

The story's unlikely source was the staid World Bank, which published updated statistics on the economic output of 146 countries. China's economy, said the bank, is smaller than it thought.

About 40% smaller.

China, it turns out, isn't a $10-trillion economy on the brink of catching up with the United States. It is a $6-trillion economy, less than half our size. For the foreseeable future, China will have far less money to spend on its military and will face much deeper social and economic problems at home than experts previously believed.

What happened to $4 trillion in Chinese gross domestic product?

Statistics. When economists calculate a country's gross domestic product, they add up the prices of the goods and services its economy produces and get a total -- in dollars for the United States, euros for such countries as Germany and France and yuan for China. To compare countries' GDP, they typically convert each country's product into dollars.

The simplest way to do this is to use exchange rates. In 2006, the World Bank calculated that China produced 21 trillion yuan worth of goods and services. Using the market exchange rate of 7.8 yuan to the dollar, the bank pegged China's GDP at $2.7 trillion.

That number is too low. For one thing, like many countries, China artificially manipulates the value of its currency. For another, many goods in less developed economies such as China and Mexico are much cheaper than they are in countries such as the United States.

To take these factors into account, economists compare prices from one economy to another and compute an adjusted GDP figure based on "purchasing-power parity." The idea is that a country's GDP adjusted for purchasing-power parity provides a more realistic measure of relative economic strength and of living standards than the unadjusted GDP numbers.

Unfortunately, comparing hundreds and even thousands of prices in almost 150 economies all over the world is a difficult thing to do. Concerned that its purchasing-power-parity numbers were out of whack, the World Bank went back to the drawing board and, with help from such countries as India and China, reviewed the data behind its GDP adjustments.

It learned that there is less difference between China's domestic prices and those in such countries as the United States than previously thought. So the new purchasing-power-parity adjustment is smaller than the old one -- and $4 trillion in Chinese GDP melts into air.

The political consequences will be felt far and wide. To begin with, the U.S. will remain the world's largest economy well into the future. Given that fact, fears that China will challenge the U.S. for global political leadership seem overblown. Under the old figures, China was predicted to pass the United States as the world's largest economy in 2012. That isn't going to happen.

Also, the difference in U.S. and Chinese living standards is much larger than previously thought. Average income per Chinese is less than one-tenth the U.S. level. With its people this poor, China will have a hard time raising enough revenue for the vast military buildup needed to challenge the United States.

The balance of power in Asia looks more secure. Japan's economy was not affected by the World Bank revisions. China's economy has shrunk by 40% compared with Japan too. And although India's economy was downgraded by 40%, the United States, Japan and India will be more than capable of balancing China's military power in Asia for a very long time to come.

But don't pop the champagne corks. It is bad news that billions of people are significantly poorer than we thought. China and India are not the only countries whose GDP has been revised downward. The World Bank figures show sub-Saharan Africa's economy to be 25% smaller. One consequence is that the ambitious campaign to reduce world poverty by 2015 through the United Nations Millennium Development Goals will surely fail. We have underestimated the size of the world's poverty problem, and we have overestimated our progress in attacking it. This is not good.

There is more bad news. U.S. businesses and entrepreneurs hoping to crack the Chinese and Indian markets must come to terms with a middle class that is significantly smaller than thought. Investors in overseas stocks should take note. Companies with growth plans tied to the Indian and Chinese markets could face disappointing results, and the high prices of many emerging-market stocks depend on buzz and psychology. Investor sentiment on China and India may now be significantly more vulnerable to future bad news.

China's political stability may be more fragile than thought. The country faces huge domestic challenges -- an aging population lacking any form of social security, wholesale problems in the financial system that dwarf those revealed in the U.S. sub-prime loan mess and the breakdown of its health system. These problems are as big as ever, but China has fewer resources to meet them than we thought.

And there is the environment. With poor air quality, acute water shortages, massive pollution in major watersheds and many other environmental problems, China needs to make enormous investments in the environment to avoid major disasters. Globally, it will be much harder to get China -- and India -- to make any sacrifices to address problems such as global warming.

For Americans, the new numbers from the World Bank bring good news and bad. On the plus side, U.S. leadership in the global system seems more secure and more likely to endure through the next generation. On the other hand, the world we are called on to lead is poorer and more troubled than we anticipated.

Maybe the old Chinese curse says it best: We seem to be headed for interesting times.

Walter Russell Mead, a senior fellow at the Council on Foreign Relations, is the author of "God and Gold: Britain, America and the Making of the Modern World."

Andrew.P
12-30-2007, 06:36 PM
Both countries have problems but no doubt China is overrated by most people and I would MUCH rather be in USA's shoes. Im not from either country btw

AntiGlobalist
12-30-2007, 06:37 PM
70% of U.S. GDP is from consumer spending.

Think about that :)

hobbes1651
12-30-2007, 06:40 PM
reps for a most interesting post.

LatissimusDorsi
12-30-2007, 06:49 PM
70% of U.S. GDP is from consumer spending.

Think about that :)

You ever read No Logo by Naomi Klein?

AntiGlobalist
12-30-2007, 06:58 PM
You ever read No Logo by Naomi Klein?

Huh uh, what's that about?

JabCross
12-30-2007, 07:00 PM
These economic data are flawed because purchasing power parity rarely holds in reality. It's only an economic theory that doesn't apply to real life. I could prove this with some graphs but it would take me about 20 minutes and I don't feel like it.

China is still a beast and this study is worthless.

LegenaryMember
12-30-2007, 07:01 PM
Having more money doesnt make the U.S a better country

EasyRhino
12-30-2007, 07:05 PM
These economic data are flawed because purchasing power parity rarely holds in reality. It's only an economic theory that doesn't apply to real life. I could prove this with some graphs but it would take me about 20 minutes and I don't feel like it.

China is still a beast and this study is worthless.

This coming from the person who is pushing Asian superiority in another thread, and saying that having a bigger head = smarter..

LOL

BigBen85
12-30-2007, 08:16 PM
Having more money doesnt make the U.S a better country

u saying ud rather live in China? that's the stupidest **** I ever heard

skinny buckeye
12-30-2007, 08:43 PM
Here's a surpise for any of you who havent had time to look into the way the US govt publishes and calculates inflatino and GDP data...

US gdp is overstated by approx 30%!

a combination of Hedonics and other adjustments cause the govt to estimate a GDP # vastly higher than the nominal figure that actually takes place.

for example if you own a home, the BEA calculates what amount of rent you would pay to yourself if you rented it to yourself and adds that # into the GDP figure!

LegenaryMember
12-30-2007, 09:54 PM
u saying ud rather live in China? that's the stupidest **** I ever heard

So i guess all ppl in china are stupid cause they live in a ****ty place.

BigBen85
12-30-2007, 10:52 PM
So i guess all ppl in china are stupid cause they live in a ****ty place.

no i said that if u had a choice between the US and China ud be stupid to pick China

IronAbrams
12-31-2007, 06:01 AM
Here's a surpise for any of you who havent had time to look into the way the US govt publishes and calculates inflatino and GDP data...

US gdp is overstated by approx 30%!

a combination of Hedonics and other adjustments cause the govt to estimate a GDP # vastly higher than the nominal figure that actually takes place.

for example if you own a home, the BEA calculates what amount of rent you would pay to yourself if you rented it to yourself and adds that # into the GDP figure!

Interesting.

Turco
12-31-2007, 06:36 AM
Having more money doesnt make the U.S a better country

It's not that US has more money in the bank. It's GDP they're talking about. Google it.

Guardian
12-31-2007, 06:44 AM
The real issue is that china is simply being used by the west to divert "dirty" industry and cheap manual intensive labor jobs. Thats why China has such terrible pollution problems and why there GDP per capita is dismall. They are basically doing what nobody else wants to do. But such a system is going to cause long term problems which we are slowly beginging to see such as a older generation with little finances, a decaying enviroment, and internal conflict over political leadership and economic well being. I was never worried about China because the people pulling the strings in china are from the west mostly investors and political leaders.

JabCross
01-07-2008, 09:05 AM
This coming from the person who is pushing Asian superiority in another thread, and saying that having a bigger head = smarter..

LOL

What does that have to do with purchasing power parity?