China's economy is 40 percent smaller than most recent estimates, a US economist said Wednesday, citing data from the Asian Development Bank and guidelines from the World Bank.
Albert Keidel, a senior associate at the Carnegie Endowment for International Peace and a former US Treasury official and World Bank economist, made the comments in a report published by the US think tank and in a commentary in the Financial Times.
Keidel told AFP he made the calculations based on a recent ADB report that made its first analysis of China's economy based on so-called purchasing power parity (PPP), which strips out the impact of exchange rates.
"The results tell us that when the World Bank announces its expected PPP data revisions later this year, China's economy will turn out to be 40 percent smaller than previously stated," Keidel wrote.
"This more accurate picture of China clarifies why Beijing concentrates so heavily on domestic priorities such as growth, public investment, pollution control and poverty reduction."
The ADB data was the first using purchasing power analysis, according to Keidel.
Based on this new analysis, he said "the number of people in China living below the World Bank's dollar-a-day poverty line is 300 million -- three times larger than currently estimated."
Keidel told AFP that under these calculations, China's gross domestic product (GDP) would have been roughly five trillion dollars in 2005, compared to some 12 trillion for the United States on the same basis.
This would still mean China's economy is moving ahead of Japan as the world's second largest economy, but might not overtake the United States until around 2030.
"These calculations are not just esoteric academic tweaks," Keidel wrote.
"Based on the old estimates, the US Government Accountability Office reported this year that China's economy in PPP terms would be larger than the US by as early as 2012. Such reports raise alarms in security circles about China's ability to build a defense establishment to challenge America's," he said.
The use of PPP began in the 1950s in an effort to compare economies without the distortion of exchange rates that could be influenced by trade or investment flows.
Keidel said his analysis has little meaning for the debate on whether China's yuan is undervalued, as many economists say.
"The PPP shouldn't be used to check whether the commercial exchange rate is valid," said Keidel, who has argued that it is not clear whether the yuan is vastly undervalued.
But he said the data helps explain why Chinese authorities are paying little heed to calls by Washington and Europe to boost the yuan.
"Our focus in the US on trade and exchange rates is secondary or tertiary in their view," he said.
Keidel said the US Congress and administration officials "should recognize the limitations and opportunities revealed by these more accurate data."
"For example, risks to its impoverished rural hinterland from a sudden large revaluation of its currency loom larger in Beijing's eyes than in Washington's," he added.
Keidel had been deputy director for the Office of East Asian Nations at the US Treasury and was previously a senior economist in the World Bank office in Beijing.
CHINA IS A POTENTIAL THREAT AND AN EMERGING POWER, BUT STILL A THIRD WORLD NATION.
WE SHOULD PRESSURE THEM MORE AND MORE ON THEIR LACK OF LIBERTY AND SHODDY IF NOT NON-EXISTENT MANUFACTURING STANDARDS.
THE WEAK DOLLAR HELPS OUR CASE HERE: THE CHINESE WOULD PREFER IT TO REMAIN STRONGER - AS WOULD THE SAUDIS.
Remember back in the eighties when we kept hearing that the Rising Sun (Japan) was going to eclipse America economically.
ReplyDeleteIt didn't.
With the benefit of hindsight it is easy to see why: Their culture is more focused on conformity. Thus, their culture does not allow for as much innovation. In order to have innovation, one has to put up with the bizarre behavior of innovators.
China, like Japan, is more focused on conformity, not only to common modes of behavior, but to tradition. Everyone thinks they know about China. China is Buddhist. China is Confucian. China is Communist.
One of the major religions in China is called "the Chinese religion." The Chines religion is ancestor worship.
The Chinese people are concerned with pleasing their dead ancestors.
Now, how in God's name is such a people to innovate?
China is good at factory work. They can make massive amounts of things we already developed. They are also good at cutting corners and putting poisons in their products.
Wow, what an innovation, being cheap and shortsighted.
The day China starts developing ideas like the internet, Google, Hip Hop, Jazz, VOIP, then maybe I'll start shaking in my boots.
It's all about America, baby.
U IZ 1000000% CORRECT.
ReplyDeleteWhat really bothers me about China is the still prevalent one-child law. If there's anything that needs to be done to end the communist rule still going there, I think elimination of the one-child law would be a good place to start.
ReplyDeleteReliapundit,
ReplyDeleteI'm glad you and I agree on this.
Avi,
ReplyDeleteI think the fact that China has that one-child policy is yet another example of why China will lose to the U.S.
The fact is, a very large number of Chinese people choose to abando, or abort, their daughters. Back in 1998, the World Health Organization estimated that 50 million women were missing from China as a result of the policy of the government.
http://worldnetdaily.com/news/article.asp?ARTICLE_ID=14554
How is a population supposed to sustain itself when it does not have enough women?
Couple the above facts with the fact that China, as a Communist government , is essentially running a Ponzi scheme which necessitates a constantly increasing population to sustain the welfare state, and you have a recipe for economic disaster.
ReplyDeleteChina will not sustain itself for long.