China has edged above Germany to become the world’s third largest economy, based on newly revised GDP data:
China’s economy leapfrogs Germany
The Chinese government has increased its estimate of how much the economy grew during 2007.
The revision means China’s economy overtook Germany’s to become the world’s third largest in 2007.
Gross domestic product expanded 13%, up from an earlier estimate of 11.9%, to 25.7 trillion yuan ($3.5 trillion).
The BBC tries to play this down (“Many Chinese people have not benefited from the boom”), but let’s use some simple algebra with vaguely realistic numbers pulled out of thin air to take a look at some rough growth scenarios:
China vs. Japan
- Scenario 1: Given zero growth in Japan’s economy vs. 8% annually for China, China will overtake Japan in 2011.
- Scenario 2: 2% growth in Japan vs. 6% for China = China overtakes Japan in 2014.
- Scenario 3: 2% growth in Japan vs. 4% for China = China overtakes Japan in 2021.
China vs. US
- Scenario 1: Given 2% growth in the US economy vs. 8% annually for China, China will overtake the US in 2034.
- Scenario 2: 3% growth in the US vs. 6% for China = China is top economy in 2057
- Scenario 3: 2% growth in the US vs. 4% for China = China rules us all in 2080.
So barring some major calamity or re-Maoization, China will overtake Japan as the #2 economy in a few years. The US seems a little safer but numbers like this make you sit up and pay attention to the Business section!
13 thoughts on “Chinese economy now #3”
And if I’m not mistaken in PPP terms China has been #2 for a while now.
Given that China needs 7% GDP growth in order to continue to employ migrant workers at the rate that it has, and word is that 120,000 Chinese factories closed last year (roughly the same as the number of JOBS lost in Japan in the bad months late last year), I’m not sure that any of these scenarios look that great for China.
Even worse when you consider what inflation will do to consumers at the bottom of China’s foot chain. China was hammered by skyrocketing food prices last year and we all know how gas gets….
So its not a matter of China ruling us all by 2080 (joke, I know), but whether any of this is going to cause crippling unrest, given the lack of a social safety net. People are already angry – the long-suffering new middle class saw stock prices drop by 65% last year (nearly double the US loss of 34%, now that’s sobering), for every migrant worker that the authorities chase out of the big cities, four more arrive….
Of course, China’s numbers are self-reported and unaudited, no?
As Joe suggests, these numbers aren’t necessarily reliable. The timing of the revision is somewhat suspect – the Chinese government is in need of some good economic news at the moment.
But, if we consider the size of population, it shouldn’t be surprising that China’s economy is getting so big. 300 years ago, China had the largest economy, but fell behind through a variety of factors external and internal.
Large political upheavals aside, touch wood, I’d expect the Chinese economy to overtake the US as well. The US economy at the moment appears bigger than it is due to exchange rate manipulation by China – or should that be that China appears small than it is. Over the next decade or so that exchange rate imbalance is going to shift.
>Over the next decade or so that exchange rate imbalance is going to shift.
But wouldn’t Chinese growth suffer when/if exchange rates shift, making it harder for China to “overtake” the U.S.
There just seem to be too many variables to predict where the Chinese economy will stand in the next 50 years. All things being equal, it may well overtake both Japan and the States, but as someone once said, ceteris rarely is paribus.
And in any case, what does it actually *mean* to be the number two economy?
“And in any case, what does it actually mean to be the number two economy?”
It means a lot to a government trying to promote its legitimacy.
The Chinese government is more or less asking ordinary Chinese to put off consumption in favor of a national project (exactly what the Japanese government did through the 1950s and much of the 1960s). Milestones like this one can be good for stoking nationalism – but what happens when the milestone is hit and people still aren’t happy with their share of the pie? Could be trouble.
“but what happens when the milestone is hit and people still aren’t happy with their share of the pie?”
Invent a new milestone.
“Invent a new milestone.”
Yeah, the next one is obviously China as #1, but can you really ask people to hold out for 40 or 50 years?
I mean, China has had huge nationalist bursts over – space, the Olympics, the economy, etc., but there has to be a law of diminishing returns kick in at some point.
It may not be as simple as “China as No. 1” if the stats can be fiddled with sufficiently. Top in any measure of economic activity would work, I think. I also tend to think, based on not a lot of evidence, that as the Chinese middle class grows, there will be new people to get gung-ho over these issues even if the current one does not.
Spam protection: Sum of 1 + 2 ?
Ooh, I can do that one!
China hit deflation last month, so the long-term inflation problem is in retreat. Regarding the unemployed, if you noted, most of these folks are migrant workers, peasants come to town for work. Part of the reason the Chinese government has been so reluctant on land ownership reforms is because as long as land is stapled to the peasantry and not transferrable without the intervention of government, the peasants can always go home to the farm and wait for the economic climate to improve.
One thing you’re also missing from the GDP calculations. The RMB has an appreciation trend versus the USD. That means, in the long run, “nominal” growth will outpace GDP growth as the RMB appreciates.
” Part of the reason the Chinese government has been so reluctant on land ownership reforms is because as long as land is stapled to the peasantry and not transferrable without the intervention of government, the peasants can always go home to the farm and wait for the economic climate to improve.”
But that’s part of the problem in rural China,isn’t it?
Whether the peasants want to sell the land or not,the regional governmenr can take them at their will and sell them off to the developers.And since most of the price of the agricultural products are fixed by government,farmers can’t take advantage of the market economy embraced by the manuafacturing industry.
Sure some of the peasants can always go back to their fields,but if they could live on only buy raising crops there,they wouldn’t be any migrant workers in the first place.As long as the peasants get land ownership,China won’t have the domestic market everyone is dreaming based on their population,since majority of them,who are peasants in rural areas can’t use thier savings for consumption.
I would add scenario 4 for Ｃｈｉｎａ ＶＳ Ｊａｐａｎ．
In 2030,China faces rapid aging society lacking nation wide social welfare system and population polarized by the huge income gap and there’s no democratic institution nor independent judical system in sight.Labor intensive industries leave China and flock to India and Bangladesh.
Japan opens its door to rice import and liberalize agricultural sector and starts to have immigrants and put economy back into action.
“As long as the peasants get land ownership”
As long as the peasants don’t get land ownership.
“so the long-term inflation problem is in retreat.”
You could also say that China’s long term growth is in retreat. For nearly a decade now the Chinese government has been saying things like “if we grow at 12% for the next 217 years, the Chinese GDP will be over twice that of all other countries combined!” (okay, a bit of an exaggeration). Chinese government predictions of decades of 10% growth are a problem.
In any case, falling oil prices, over which China has no control, are partly responsble for this deflation.
China looks increasingly in crisis. Even Beijing is admitting that there are something like 20,000,000 migrant workers without jobs. There are estimates that the number of unemployed nationwide could rise to 140,000,000 by the time that the current economic crisis is over. This is what you get when your economy is based around selling things to people who can no longer buy. Japan has had a similar set back, but its job losses since Sept. last year have been a fraction of that of the US (including haken).
Ace’s comments on China’s ageing population problem – which will be nearly as bad as Japan’s by mid-century – are spot on. And if Chinese wages rise by even a fraction, Walmart and friends will run for the hills… of South Asia.
China will be a big player in years to come but it is getting increasingly hard to see the silver lining.
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