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China: It's Not As Big As You Think (Like Duncan Hunter says, "They Cheat!")
Investors Business Daily ^ | December 18, 2007 4:20 PM PT | INVESTOR'S BUSINESS DAILY

Posted on 12/19/2007 4:58:46 PM PST by GulfBreeze

China: It's Not As Big As You Think

By INVESTOR'S BUSINESS DAILY | Posted Tuesday, December 18, 2007 4:20 PM PT

Competition: The common wisdom is that China's large and fast-growing economy could overtake the U.S. as soon as 2012. Not so fast. New data suggest China's not quite as big as economists once thought.



The World Bank's latest estimates for the global economy contained a stunner of a statistic: China accounts for just under 10% of the world's total output — or about 40% smaller than thought.

At $5.3 trillion based on 2005 data, China's economy is still No. 2. But it has considerably more ground to make up before passing the U.S. in absolute size — if, in fact, it should ever do so. Total world output in 2005 was $55 trillion. The U.S. produced $12.4 trillion of that — with a population only one-fourth the size of China's.

How did these new data come about? The World Bank uses what's called Purchasing Power Parities — PPP for short — to figure how big an economy is. Basically, it surveys a market basket of some 1,000 goods and services, and sees how much of each people in those countries can actually buy in their own currency.

Doing this around the world, the bank discovered that 12 economies make up more than two-thirds of the world's GDP. Seven of those are so-called high-income economies — the U.S., Japan, Germany, the U.K., France, Italy and Spain.

Five are "transitional" economies — Brazil, Russia, India and China (the so-called "BRICs") plus Mexico. Together, they make up about 20% of output.

But the one that sticks out is China. World Bank statisticians got access to real data on China for the first time ever, and came away surprised. "The previous, less reliable, methods led to estimates (of China's GDP) . . . 40% larger than the results of the new, improved methods and benchmark," the World Bank report said.

This should be a lesson for those who take international statistics at face value. Anytime you're off by 40%, it's more than a rounding error. It's a big mistake — largely China's fault, since it wouldn't let anyone accurately measure its economy before.

And this is of more than just statistical interest. It means, for instance, that there are likely more than 300 million Chinese who live below the World Bank's $1-a-day poverty line — not the 100 million previously estimated.

This helps explain why China's communist regime still cracks down hard on any manifestations of dissent — contrary to its PR of China as the land of perpetual economic boom. It knows how bad things really are in the undeveloped hinterlands.

It also calls into question China's financial ability to support a massive military buildup to challenge the U.S. Dollarwise, the country just won't have the money — at least not yet. And besides, it should be spending that money on development — not arms.

This doesn't mean China's economy isn't growing fast. It is. Nor does it mean China isn't a potential U.S. rival, both economically and militarily. Again, it is.

But to us, this smacks a bit of the CIA's faulty analysis of the Soviet threat in the 1950s and '60s. Back then, there were no good real-world data issued by the Soviets. So economics analysts fell back on the tried and true: toting up Soviet output using satellites, secret cameras and other means to count the raw number of trucks and trains leaving factories during a given month, then comparing it with the same month a year earlier. If a factory had 100 train cars leave its doors one year, and the next year it had 110, it was assumed that the plant's output expanded by at least 10%. Not a bad assumption — but a wrong one.

For while the Soviets churned out massive amounts of goods, their quality was suspect. Box cars could be filled with shoddy, virtually unusable goods intended to meet state quotas. But we pretended that output was the same as ours.

We've done something similar with China — which, intentionally or not, has deceived us for years about the true size of its economy.

Now that it has finally opened up about what its economy is truly like, we can only hope that it too will let the other shoe drop and open up its one-party political system.



TOPICS: Business/Economy; Editorial; Foreign Affairs; Politics/Elections
KEYWORDS: 2008; china; duncanhunter; hunter
I found a reference to this article in another article posted here.

http://www.freerepublic.com/focus/f-news/1941948/posts - The Chinese Economy Hoax and Other Economists' Fables

I thought the referenced article was at least as informative as the BLOG referencing it so here you go.

1 posted on 12/19/2007 4:58:51 PM PST by GulfBreeze
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To: GulfBreeze

Thanks for this article. Eagles UP!!


2 posted on 12/19/2007 5:03:30 PM PST by AmericanInTokyo (HUNTER: SOLID! Tops on: Illegals, Trade, DPRK, Iran/Iraq, Economy, WOT, PRC, Budget, PROLife)
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To: GulfBreeze
Fine? China produces nearly 50% as much as US. I hope that we don't send them the rest of our factories, for a few years...

SERIOUSLY.

3 posted on 12/19/2007 5:22:00 PM PST by veracious
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To: GulfBreeze
this smacks a bit of the CIA's faulty analysis of the Soviet threat in the 1950s and '60s. Back then, there were no good real-world data issued by the Soviets.

I have made this same comparison for some time. Whenever we have heard of state-run "economic miracles" they always end up being too good to be true. And the lefties always suck it down wholesale before being exposed as gullible chumps.

4 posted on 12/19/2007 5:47:58 PM PST by hinckley buzzard
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To: GulfBreeze
This helps explain why China's communist regime still cracks down hard on any manifestations of dissent — contrary to its PR of China as the land of perpetual economic boom. It knows how bad things really are in the undeveloped hinterlands.

China's population is so vast and poorly educated that they are easily swayed (by golly, it's almost as if the democrat party has coopted this lesson!)

China is in transition, with the rest of the country trying to catch up with places like Hong Kong. If it was repression for the sake of repression Hong Kong would be getting screwed to the wall. I believe the crack downs by the government are not so much a imposition of idology as they are a simple matter of control; that no movement with the potential of upsetting the status quo will be tolerated.

In time it will be possible to relax these controls, but the change will take time as real economic growth tranlates to a better educated and more productive population. It is coming. Maybe not as fast as expected, but faster than we are currently prepared for. How many idiot school districts (redundant, I know) are still teaching French?!? Some have gotten smart and are teaching Mandarin, but this transition is not happening quickly enough.

5 posted on 12/19/2007 5:50:40 PM PST by 70times7 (Serving Free Republic's warped and obscure humor needs since 1999)
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To: GulfBreeze

ping for later


6 posted on 12/19/2007 6:26:33 PM PST by Cruz
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To: All
Ann Coulter was just on H&C again saying she was for DUNCAN HUNTER!!!

ANN IS RIGHT!!!

7 posted on 12/19/2007 6:29:12 PM PST by NordP (Such tough choices ahead, I'm now a "middle of the road" voter--somewhere between RUSH & Savage ;-))
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To: GulfBreeze

And of course these are PPP valuations. At exchange rates (which I’m surprised even the pro-U.S. Investor’s Daily did not point out, as exchange rate comparisons are still a standard, particularly when measuring an economy like China’s that is so heavily comprised of exports), China is nowhere near being the second largest economy, and measures around $3 trillion vs around $14 trillion for the U.S.


8 posted on 12/19/2007 6:34:42 PM PST by Sandreckoner
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To: NordP
Someone should post as a separate thread on FR, Ann Coulter re: DUNCAN HUNTER!!
9 posted on 12/19/2007 6:37:14 PM PST by AmericanInTokyo (HUNTER: SOLID! Tops on: Illegals, Trade, DPRK, Iran/Iraq, Economy, WOT, PRC, Budget, PROLife)
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To: AmericanInTokyo

They did...http://www.freerepublic.com/focus/f-news/1942064/posts


10 posted on 12/19/2007 6:39:02 PM PST by NordP (Such tough choices ahead, I'm now a "middle of the road" voter--somewhere between RUSH & Savage ;-))
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To: All
"Ann Coulter was just on H&C again saying she was for DUNCAN HUNTER!!!"

ping

11 posted on 12/19/2007 6:41:15 PM PST by Fitzcarraldo
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To: GulfBreeze
Go
12 posted on 12/19/2007 6:43:07 PM PST by Oratam (")
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To: GulfBreeze

Well, thank goodness the reliability of Chinese statisticians producing this new datum meets the Quality Control standards of their manufacturing industries. /sarcasm


13 posted on 12/19/2007 6:46:33 PM PST by Cvengr (Every believer is a grenade. Arrogance is the grenade pin. Pull the pin and fragment your life.)
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To: GulfBreeze
"They Cheat!"

Ya think? Is it possible that they lie too?

14 posted on 12/19/2007 7:33:05 PM PST by YHAOS
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To: Sandreckoner
China is nowhere near being the second largest economy, and measures around $3 trillion vs around $14 trillion for the U.S.

Well, this report reveals that China's purchasing power has been overestimated. But I wouldn't count China out. I mean, what did the picture look like 20 years ago compared to today and what will the picture look like in 20 years?

Even by your assertion of $3 trillion, that will put China ahead of Germany at #3 in the world. Just over a decade ago, using not purchase power parity, but the actual exchange rate, China was #8 or so. Now they're #3.

So, I wouldn't count them out. I'm still confident that they'll surpass Japan well within the next decade and the US in another two decade.

Also, China's currency is undervalued and I suspect it will double thereby doubling her economy along with its growth. Given time, your grandkids may be working for a Chinese owned company. And that global paradigm will be a norm for them. Maybe not for you, but for them, it'll be as acceptable as working for a British or Canadian owned company :)

15 posted on 12/19/2007 8:24:03 PM PST by ponder life
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To: hinckley buzzard

Good enough place to bump this thread.

.

.

.

According to Intrade, the winner of the December 12th GOP debate was... Duncan Hunter.
http://www.freerepublic.com/focus/f-news/1938773/posts


16 posted on 12/19/2007 8:50:10 PM PST by Kevmo (We should withdraw from Iraq via Tehran. And Duncan Hunter is just the man to get that job done.)
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To: NordP

Ann is SMART.


17 posted on 12/19/2007 11:55:54 PM PST by Lexinom (Build the fence and call China to account. GoHunter08.com)
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To: hinckley buzzard
I have made this same comparison for some time. Whenever we have heard of state-run "economic miracles" they always end up being too good to be true. And the lefties always suck it down wholesale before being exposed as gullible chumps.

Um, China is still growing at 10% annually. The only difference was the calculation for the base (PPP versus current exchange rate), which is the World Bank's fault, not the Chinese government's (of course you can stretch everything). So I wouldn't be too quick to rule out China's economic miracle based on this story. The only thing this story says is that the World Bank is full of crap.
18 posted on 12/20/2007 8:04:08 AM PST by charles m
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