China. Economic Juggernaut?

[otterinbham 0]

Nice background reading that balances out the shrill nonsense you're hearing about a surging China:

Economic View

A Chinese Century? Maybe It’s the Next One

By LESTER THUROW

Published: August 19, 2007

CHINA claims that its economy is growing at 10 to 11 percent a year, and China’s official analysts say that their nation will catch up with the United States long before the 22nd century arrives. Don’t believe it.

First, let’s deal with the implausibility of the official Chinese statistics. Mathematically, if the overall economy were to grow 10 percent annually, and the 70 percent of the economy that is based in rural areas were not growing (as stated by the Chinese government), the economy in China’s cities would have to be growing by 33 percent a year. The urban economy is growing rapidly, but not at a 33 percent pace.

Furthermore, Chinese statistics conflict with those of Hong Kong, the semiautonomous territory that serves as the financial capital of much of southern China. In 2001, Hong Kong had a recession, which is to say that it reported that its gross domestic product fell. Guangdong, the adjacent Chinese province, has a population of around 200 million. In 2001, it reported that its G.D.P. grew by 10 percent. What are the chances that both of those numbers are correct? Very slim.

Economic growth rates can be inferred from electricity consumption. In every country in the world, electricity use has generally grown faster than the G.D.P. Electricity is necessary for nearly all productive activities, and because of inefficiencies, consumption of electricity has generally outstripped economic growth. Rising energy costs have resulted in more efficient use of electricity, but especially in the developing world, economic growth has still generally lagged growth in electricity.

But if China’s official numbers are to be believed, there are provinces in China where the G.D.P. has been growing faster than energy use. That is unlikely, since the central government’s statistics also say that energy use per unit of G.D.P. is going up — not down, as claimed in provincial G.D.P. statistics.

Among the world’s 12 most rapidly growing economies over the last 10 years, the G.D.P. has grown only 45 percent as fast as electricity consumption. In the early 1970s, Japan was shutting down its electricity-guzzling aluminum industry. During this period, the G.D.P. grew 60 percent as fast as electricity consumption, the highest recorded level among industrialized nations.

Using those numbers as a guide, if we consider China’s actual electrical use, which is relatively easy to measure, and do a little math, we come up with this estimate: The G.D.P. in China has been growing somewhere between 4.5 percent (using the average for a rapidly growing country) to 6 percent a year (using the highest rate for Japan), not at the 10 percent rate claimed in official statistics.

The official statistic for China’s overall growth rate is best regarded as an approximate growth rate of the economy of its cities.

China also officially claims that it will catch up with the United States and become the world’s largest economy well before the 22nd century arrives.

There is an equally simple reason that neither of these predictions is likely to be realized. It simply takes more than 100 years for a large, less economically developed country to catch up with the world leader in per capita income. One need look only at the history of the United States, which had a much higher growth rate than Britain in the 19th century, yet did not catch up until World War I. Or consider Japan and the United States. Some 150 years after Japan started to modernize during the Meiji restoration, the country’s per capita G.D.P. is still only 80 percent of that of the United States in terms of purchasing power parity — although, in nominal terms, it has caught up.

The United States is not standing still. In fact, its per capita income grew faster than nearly all other big countries from 1990 to 2007. Europe’s per capita income fell from 85 percent of that of the United States in 1990 to 66 percent in 2007, according to International Monetary Fund statistics.

So let’s say that the inflation-adjusted growth rate for China is 4 percent a year. This is optimistic, because China will certainly have some bad years in the next century. Every country does — remember the Great Depression in the United States. A 4 percent rate is faster than any big country has ever grown for 100 years. But assume that China can do it. Assume, too, that America grows at the 3 percent rate it has averaged for the last 15 years.

Now project the two growth rates forward: the inflation-adjusted per-capita G.D.P. of China would be less than $40,000 in 2100, versus almost $650,000 in the United States. That’s because China starts at $1,000 per capita and the United States at $43,000. If, in 2100, China has four times as many people as the United States, as it does now, China would still not have a total G.D.P. equal to America’s.

But it is unlikely to have four times as many people. It is always a mistake to project population growth rates for a century, but let’s do it anyway: With a one-child policy and a sex ratio that favors boys (many men won’t find wives) — China should experience a decline in population in the 21st century. Yet let’s assume for a moment that China’s population remains constant, at 1.3 billion. If immigration to the United States continued at the current rate, America’s population would rise. If the population grew at 1 percent a year, as it has recently, it would more than double by 2100, reducing the enormous population gap between the two countries. Are these projections likely to be realized? Who knows?

What is clear is that China is unlikely to surpass the United States in G.D.P. in absolute or relative terms anytime soon.

There may be a Chinese century, but it will be the 22nd century — not the 21st.

Lester Thurow is a professor of management and economics at the Massachusetts Institute of Technology. He is also on the board of Taiwan Semiconductor, which does business in mainland China.

[otterinbham 0]

Man. No response. I'm gonna stop handing out these little gems.

[Tigermike 3,041]

I've been busy and I've also been accused of posting too much in this forum.

Actually when I first read the article, I had two thoughts: (1) If western countries have to keep recalling products manufactured in China their (China) economy will be taking a nose dive. (2) Does anyone in their right minds believe economic reports from communist countries?

[DKW 86 7,431]

I've been busy and I've also been accused of posting too much in this forum.

Actually when I first read the article, I had two thoughts: (1) If western countries have to keep recalling products manufactured in China their (China) economy will be taking a nose dive. (2) Does anyone in their right minds believe economic reports from communist countries?

What he said and good article.

[otterinbham 0]

Well, the reason I posted is because I was in a discussion with a banker the other day who was getting panicky about the Chinese. And I was making the point that the Chinese were probably exaggerating their economic growth and also had some serious economic problems looming.

If you factor in China's One Couple/One Child policy, the Chinese are facing a demographic nightmare within a decade. I just don't see how they'll accumulate enough wealth to sustain a very rapidly aging population.

[quietfan 233]

If western countries have to keep recalling products manufactured in China their (China) economy will be taking a nose dive.

It does seem like their biggest export lately has been lead...in the form of paint!

I agree that their population control policies have them facing an aging problem that makes our Social Security problems look minor by comparison. "One Couple/One child" has also produced a major shortage in marriagable (sp?) females. Of course, that might make the males a little more angry and a little more agressive--I'd be nervous if I were one of their neighbors. On the other hand, without population control, would their runaway overpopulation and resulting strain on resources create any rosier of an economic picture?

[otterinbham 0]

A few months later, the World Bank agrees with Thurow. Evidently the Chinese have been cooking the books:

http://news.yahoo.com/s/afp/20071217/bs_af...na_071217150618

WASHINGTON (AFP) - The size of China's economy is overestimated by some 40 percent based on most current measures, but is the world's second largest, the World Bank said Monday.

In a report ranking the world's economies, the World Bank said a more reliable method of estimation using "purchasing power parity" (PPP) shows a much smaller value than the traditional market value estimates which the Bank called "less reliable."

The study carried out by the World Bank and other partners was "the most extensive and thorough effort" to measure the relative size of 146 economies using the PPP method which strips out the effect of exchange rates, a Bank statement said.

China participated in the survey for the first time and India for the first time since 1985.

"These results are more statistically reliable estimates of the size and price levels of both economies," the Bank said.

"The previous, less reliable, methods led to estimates of their GDPs (gross domestic product) that were 40 percent larger than the results of the new, improved methods and benchmark."

China still ranks as the world's second largest economy with over nine percent of world production, but that compared with 14 percent under the old methodology.

India is the fifth largest with over four percent of the world total, up from two percent using market exchange rates.

In the study, the United States still has the world's biggest economy with 23 percent of global output, but that is down from 29 percent using market rates.

Japan ranks third under the PPP method with seven percent of global output, lower than using market rates.

The study said the survey "should not be used as indicators of the under- or overvaluation of currencies."