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China’s economy smaller than thought?
Posted by: Jon Henke on Friday, November 16, 2007

This would seem to have quite significant implications for foreign policy, international economic intelligence, and a variety of other fields.
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.
[...]
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.
With China rapidly attempting to adhere to International Accounting Standards, this kind of adjustment would have to come out eventually. Still, it is rather large.

If the study is confirmed by the World Bank and other international economic monitors, one suspects it will have a substantial impact on Asian stock markets...and perhaps on Chinese Government economists, as well. Unlike US bureaucrats, I doubt their mistakes are rewarded with more funding.
 
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The Conventional Wisdom also overestimated the Soviet economy as well, if I recall correctly. Interesting how the Conventional Wisdom seems to always overrate command economies whenever possible and play up the problems of free market economies.
 
Written By: timactual
URL: http://
Aren’t exchange rates a huge factor when calculating the wealth of a country? What does this PPP entail?
 
Written By: Jimmy the Dhimmi
URL: http://www.warning1938alert.ytmnd.com
PPP = Purchase Power Parity. That takes exchange rates into account. Even aside from that, though, it’s smaller than thought.
 
Written By: Jon Henke
URL: http://www.QandO.net
I’m not sure what the overall size of the economy means in terms of policy. If it has been routinely mis-measured and growth is still relatively high, then it’s not necessarily a sign of economic weakness. After all, it still sees China as the second largest economy and simply pushes back the expected date for overtaking the US. And, to be sure, we are definitely flooded with Chinese goods. I’d be interested if there were any changes in estimates of growth rates of the past decade or so.

The important news here is that there is a real problem with a maldistrubtion of wealth in China. With 300 million dirt poor, and hundreds of millions of others at some level of poverty, it’s unlikely that China could institute a democratic system and remain stable. The trick for the CCP down the road is that when the Middle class demand to share political power they find a way to do it. It probably can’t be wide open liberal democracy. And then once the middle class shares power effectively to slowly move to enfranchise the poor. That’s really how it was done in the West too — the idea that a sudden move to the kind of advanced democratic system we have is possible is likely wrong, and the internal conditions in China show the immense challenge they face in the next century. The CCP can’t hold on to power, the middle class will demand it. But how to manage the change in a stable manner?
 
Written By: Scott Erb
URL: http://faculty.umf.maine.edu/~erb/blog.htm
If anyone is truly interested in China, I recommend a trip to Guangdong province. Coming out of Taiwan, which is highly industrialized, it still blows you away just how many factories there are in China. Just how much stuff does the world need? Apparently a heckuva lot.

The infrastructure is becoming first rate as well. Their roads shame those in Taiwan. Their planning seems to be on a "build it big because it will come" and I think that’s the way to do it. Check out the Guangzhou exhibition grounds which are larger than anything I’ve seen in Germany let alone the US.

Yes, there are hundreds of millions of poor people in interior China. Guess what? They move into the coastal areas for jobs, and companies like Ikea now have sourcing offices for the inner provinces as they shift their buying to cheaper areas. In fact, wages are shooting up despite the labor issue, making place like Vietnam boom as foreigner invest there instead of China. Oh, and so are Chinese companies. The speed of the modern economy is insane. It took 40 years to move production from the US to Taiwan. It took 20 years from Taiwan to China. Now Chinese companies with only 10 years of existence have Vietnam and Cambodian plants.


"The important news here is that there is a real problem with a maldistrubtion of wealth in China. With 300 million dirt poor, and hundreds of millions of others at some level of poverty, it’s unlikely that China could institute a democratic system and remain stable."

See India for an immediate counter-factual. I really don’t get how this guy has a PhD and is a teacher.

"The trick for the CCP down the road is that when the Middle class demand to share political power they find a way to do it. It probably can’t be wide open liberal democracy. And then once the middle class shares power effectively to slowly move to enfranchise the poor. That’s really how it was done in the West too — the idea that a sudden move to the kind of advanced democratic system we have is possible is likely wrong, and the internal conditions in China show the immense challenge they face in the next century. The CCP can’t hold on to power, the middle class will demand it. But how to manage the change in a stable manner?"

Good luck with that plan. A whole lot of the rich people in China are politically connected and want to keep power precisely because it brings them money. They actively recruiting businessmen to join the party. There are no plans to allow any opposition and the initial village level elections have been stopped. Yeah sure, they could slowly change over like Taiwan or Korea (but even those occurred very quickly - within 5-10 years of beginning serious reforms the opposition parties ended up in power.) Things move faster now. Maybe you can convince the Chinese music industry to start off by selling LP,s then CD’s and wait for 20 years on MP3’s....because you know, that’s how the West did it. Frankly I am not confident political reform will happen peacefully in China.
 
Written By: Harun
URL: http://
Let me just remind people what Erb is really saying:

China has moved from a communist system to a fully capitalist system in less than 20 years. But it should emulate the West’s political trajectory of moving glacially. Why should it be harder to have free elections than free markets? I really don’t get that.
 
Written By: Harun
URL: http://
I’m also reminded of the warning that any time a government keeps emphasizes "stability" it means its really, really unstable. Otherwise why would it care.
 
Written By: Harun
URL: http://
See India for an immediate counter-factual. I really don’t get how this guy has a PhD and is a teacher.
Because I understand both the idiosycracies of Indian democracy and the challenges facing China. In fact, my last class in Comparative Politics (on Thursday) was about China and it’s reforms, and my next class (Tuesday) deals with India. As I closed the class on China I set up India as a counter-example, a major country facing similar problems which has had a democracy function reasonably well. I noted that this was the stuff of Comparative Politics, looking at different cases and examining differnces and similarities.

Perhaps you should avoid the cheap shots and actually engage in dialogue. It might be that people with Ph.Ds and who teach actually do understand the issues, even if you don’t think that comes through in a short post about a particular subject.

I also note you don’t at all offer any counter argument to my points about China. The fact is that relatively free markets (i.e., state capitalism) are easier to achieve than free political competition. Taiwan and South Korea had authoritarian state capitalist systems that did transform to democratic systems. For China to emulate that, they need to solve a myriad of problems. You can’t just poo-poo those problems and pretend they don’t exist.
 
Written By: Scott Erb
URL: http://faculty.umf.maine.edu/~erb/blog.htm
"The fact is that relatively free markets (i.e., state capitalism) are easier to achieve than free political competition."

Meanwhile India had democracy with socialist markets...wait, I thought it was easier to do it the other way around~! WTF!

"Taiwan and South Korea had authoritarian state capitalist systems that did transform to democratic systems."

I think in the case of Taiwan it is extremely misleading to say they had "state capitalism." Taiwan’s economic growth has mainly been the private sector kickin’ ass and takin’ names, while salt, sugar, alcohol, tobacco remain government monopolies. Guess which industries made Taiwan rich? Hint: Taiwan Beer is not a world class product.

Anyways, what you are saying is that each country is different, etc., etc. While that is true, I find that people the world over are remarkably the same. That’s why I am not so sure about your thinking about culture supposedly affecting politics. I’d say entrenched power affects the outcomes more and that is not the same as culture.

p.s. A PhD who lives in Maine knows very little about China in reality. There is no reason they cannot open up their system and allow opposition parties to form and hold elections. The argument for slow reform is the same as saying we should have a literacy test for voting rights in the USA. Because some people are too dumb to allow to vote. Right?

 
Written By: Harun
URL: http://
Well, Harun, a lot of experts on China disagree with you, and when I research to teach, I go to the experts and the top studies. But, of course, they may be wrong. I also have a more Burkean view of culture than you do — in a sense I’m more conservative, and find the kind of liberal universalism you seem to espouse to be misguided and one of the reasons the administration made such errors in going to war in Iraq. But one of the books I’m having my foreign policy class read next semester is from Fukuyama, so I definitely will have students engage honestly that very liberal (even if it’s called neo-conservative) perspective.
 
Written By: Scott Erb
URL: http://faculty.umf.maine.edu/~erb/blog.htm
Harun, I think it’s quite likely that political reform in China would lead to serious instability. Read the J-Curve. The bottom line is that very authoritarian and very democratic countries are stable, and everything in the middle is unstable.

Having said that, I agree that China isn’t just scared of instability: they’re also genuinely disinterested in democracy.

The real problem - for the whole world - is that it’s not clear that fascism - China is basically a fascist state at this point - is less efficient than democratic capitalism.
 
Written By: glasnost
URL: http://
I would find it hard to believe that China is just ahead of India as opposed to just behind Brazil

http://www.imf.org/external/pubs/ft/weo/2007/02/weodata/weorept.aspx?sy=1980&ey=2008&sort=country&ds=.&br=1&c=512%2C941%2C914%2C446%2C612%2C666%2C614%2C668%2C311%2C672%2C213%2C946%2C911%2C137%2C193%2C962%2C122%2C674%2C912%2C676%2C313%2C548%2C419%2C556%2C513%2C678%2C316%2C181%2C913%2C682%2C124%2C684%2C339%2C273%2C638%2C921%2C514%2C948%2C218%2C686%2C963%2C688%2C616%2C518%2C223%2C728%2C516%2C558%2C918%2C138%2C748%2C196%2C618%2C278%2C522%2C692%2C622%2C694%2C156%2C142%2C624%2C449%2C626%2C564%2C628%2C283%2C228%2C853%2C924%2C288%2C233%2C293%2C632%2C566%2C636%2C964%2C634%2C182%2C238%2C453%2C662%2C968%2C960%2C922%2C423%2C714%2C935%2C862%2C128%2C716%2C611%2C456%2C321%2C722%2C243%2C942%2C248%2C718%2C469%2C724%2C253%2C576%2C642%2C936%2C643%2C961%2C939%2C813%2C644%2C199%2C819%2C184%2C172%2C524%2C132%2C361%2C646%2C362%2C648%2C364%2C915%2C732%2C134%2C366%2C652%2C734%2C174%2C144%2C328%2C146%2C258%2C463%2C656%2C528%2C654%2C923%2C336%2C738%2C263%2C578%2C268%2C537%2C532%2C742%2C944%2C866%2C176%2C369%2C534%2C744%2C536%2C186%2C429%2C925%2C178%2C746%2C436%2C926%2C136%2C466%2C343%2C112%2C158%2C111%2C439%2C298%2C916%2C927%2C664%2C846%2C826%2C299%2C542%2C582%2C443%2C474%2C917%2C754%2C544%2C698&s=PPPPC&grp=0&a=&pr.x=44&pr.y=10

Unless a lot of data for middle income countries is wrong
 
Written By: emmess
URL: http://

 
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