A Study of the Causes and the Effects of China’s Economy possibly becoming the next 10 Trillion Dollar Superpower
“A Study of the Causes and the Effects of China’s Economy possibly becoming the next 10 Trillion Dollar Superpower.”
Chapter 1 – “Where China Stands.”
China is the country with the largest population in the world, at 1.2 billion people it accounts for more than a sixth of the human race. In an economic sense however China has always been somewhat of an underachiever. Its command economy structure has led to inefficiency and an incorrect mix of consumer and capital goods. Where in recent times the “Asian Tigers” have boomed, China it seems has lagged, with communism, poverty and an abysmal human rights record stunting economic growth.
Until now, China has weathered the storm of the Asian financial crisis without much damage accrued. In 1979 it was decided by the Chinese government that there would have to be a radical overhaul of their economic system, progress has been very gradual but the results are plain to see. Statistics show that real GDP has risen at an average annual rate of 9.7% post-reform, with 1992 having the highest in China’s history at 14.2% (Table 1). This is obviously very encouraging for the Chinese Government, due to the success of these measures they have taken further steps towards becoming a more free market economy.
It is very difficult to measure the size of China’s economy accurately. A BBC Online report I examined stated that China’s economy had, due to its economic output in 2001 overtaken Italy as the sixth largest economy in the world, and is now challenging France as fifth. A Bloomberg spokeswoman said that “At current exchange levels, China could overtake France next year, and the UK in 2005 or 2006.” China’s per capita GDP is only $790 and it is reckoned by the World Bank that nearly 30% of the population lives beneath the poverty line of $1 a day. This would indicate that the economy and its people’s living standards were far below that of the most powerful countries like the US, Japan or Germany. China’s 1999 GDP would only be 2.3% of the United State’s $33,835. However comparisons like these are rash and underestimate the Chinese wealth. This is because prices in China for the majority of goods and services are significantly lower than those in the United States and other developed countries. This of course means the Chinese have more purchasing power with the same number of dollars. These price differentials make it very difficult to measure and compare the countries’ figures, especially due to the high propensity for Chinese goods to be bought using barter or trade. Economists have however made an attempt to factor in these differences and came up with the “purchasing power parity” measurement (PPP). This converts actual purchasing power of currency into US Dollars based on the prices of goods or services, not unlike the RPI in Britain. When China’s figures are used this way its Per Capita GDP in PPP is raised to $4,228. This is now 12.4% of the United State’s Per Capita GDP, a far more realistic figure. However the PPP is possibly unreliable due to the nature of China’s developing economy, prices of many goods are distorted due to trade barriers, price controls and subsidies. Unfortunately it is the most accurate means available for comparison. These figures and more comparing China to Germany and Japan can be seen in Table 2.
