We are developing the social individualist meta-context for the future. From the very serious to the extremely frivolous... lets see what is on the mind of the Samizdata people.

Samizdata, derived from Samizdat /n. - a system of clandestine publication of banned literature in the USSR [Russ.,= self-publishing house]

From West to East

There may be a sub-text or an agenda here (and it is the Guardian after all) but I am loss to readily identify one. Hence, it is hard to judge just how much credence to give a story like this. In its favour, it is consistent with other news emanating from China:

According to government officials, the amount of economic activity in China soared to RMB7.9 trillion (£570bn) in the first nine months of the year, putting China on course to achieve a growth rate of 8.5% for 2003 – the fastest in more than five years.

If the country can maintain this pace it will overtake Britain and France to become the world’s fourth biggest economy well before the end of 2005.

Chinese government officials? The Guardian? Oooh, my ‘Source-Warning’ indicator is blinking furiously. Still, it would not and should not be surprising that a country which has ditched socialism should outperform two countries that are still wedded to it.

Tweet about this on TwitterShare on FacebookShare on LinkedInShare on TumblrShare on RedditShare on Google+Share on VK

18 comments to From West to East

  • BigFire

    Still you’ve got to wonder how much of that is build on the quicksand of bad banking industry (shades of Yakuza recession of Japan, where a huge chunk of bad loan were tied up in Yakuza controlled enterprised, which makes it impossible to resolve). In China, the state enterprise and former state enterprise is the culprit of the graft and bad loan. I’d think twice before throwing my money there.

  • M. Simon

    Is the Brit economy such that a 10% a year growth rate from a $600 bn base would exceed Brit GDP in a couple of years?

    Some how I doubt it.

  • asm

    Still, it would not and should not be surprising that a country which has ditched socialism should outperform two countries that are still wedded to it.

    OUCH! That’s gonna leave a mark.

  • Reid of America

    China’s economy is already larger than Britain and France. The Chinese GDP figure grossly underestimates the true level of economic activity in the nation. It basicly measures the modern cash economy of the boom cities but doesn’t adequately measure the rural non-banking economy of 800 million people. If you were to include the rural non-banking economy and compare GDP on a purchasing power parity basis, China has the 3rd largest economy and will soon overtake Japan as the second largest economy.

    The size of India’s economy is also grossly underestimated in the same fashion.

  • Hmm. Bear in mind that China’s economic figures are all made up. China as the coming power is a myth – India’s the one to watch.

  • Adam

    I always hear conflicting numbers on China’s economy, and I have no idea what to believe. According to the CIA World Factbook 2002, China’s GDP (purchasing power parity) is $5.56 trillion, easily larger than Britain, France and Germany combined, and significantly larger than Japan at $3.45 trillion, yet we see articles like this one and we still hear that Japan is the second largest economy in the world. Anyone have any idea about this? Does it have to do with the unreliableness of the Chinese government’s figures, or the fact that some comparisons are PPP and some aren’t?

    (BTW, a trillion is 10^12 in the US, in case a different word is used in the UK.)

  • Reid of America

    James comments – “China as the coming power is a myth – India’s the one to watch. ”

    There is nothing mythical about China ascendancy. Both China and India will have larger economies than the EU in less than 50 years.

    Both China and India will experience growing pains and may have turmoil or revolution in the years to come. But their ascendancy is likely to continue.

    The big question is whether European descent will stop? The EU is just shuffling the deck chairs on the Titanic with it’s current policies.

  • I’m not disputing that the Eurozone is in decline and that if we don’t get rid of our present government we will soon follow them, however its not just the size of the economy that matters. China’s 19th Century GDP was probably higher than that of the British Empire, but it was still a peasant economy. Presently China is becoming an industrial economy, and the world’s source of manufactured commodities, but the West is well past the industrial age – which is why India (becoming the world’s source of techno commodities, e.g. programming) is the place to watch.

  • Reid of America

    I agree that India has an edge over China in information technology which is largely due to the widespread use of English amongst the educated classes. But look at how highly developed Chinese have become in Hong Kong, Taiwan and other SE Asian enclaves. Those places were dirt poor 50 years ago. The Chinese have a culturally inborn entrepeneural drive that communism hasn’t snuffed out. If China achieves a per capita GDP that is one fourth that of Taiwan, it will have the worlds largest economy. That isn’t far fetched.

  • Scott Hillis

    China ranks as the 6th biggest economy in the world in absolute dollar terms, with annual GDP on track to be about $1.2 trillion this year. Purchasing power parity is another way of looking at an economy that compares the prices of similar goods and services in different countries. For example, a bus ride in New York might cost $2.50 while in China one of a similar distance in Beijing might cost $0.50. PPP then adjusts the economic impact of the Chinese bus ride AS IF were the same good as the New York bus ride. On this basis, the Chinese economy looks much larger. I’ve always been skeptical of this approach because of course a ride on a creaky Beijing bus with 150 other people is not the same good as the air conditioned New York bus where all 50 passengers are seated.

    As far as the reliability of Chinese statistics, there is a lot of suspicion now that they drastically *understate* growth, and that growth is actually running at 10 percent or more. In truth, it is impossible to get a really accurate picture. For everything that is overstated by state firms or local officials trying to look good, things are understated by private firms and individuals trying to avoid undue attention from authorities like the taxman. Though it is unlikely that all economic activity is captured in Chinese figures, they are still the most detailed and reliable gauge out there.

    The growth is happening, and it is driven more and more by the private sector. Though they are still maintaining big state firms, that is mostly to keep a lid on unemployment (already at 8 percent or so) and social unrest. They know they need private entrepreneurs to create jobs and drive growth. The health of the banks is sort of related, but is really a different issue. China hopes to grow its way out of the bad loan hole the banks are in (total bad debt may be 40-50 percent of all outstanding loans, copmared to less than 5 percent for Japan’s debt) but most economists think another big bailout will be needed at some point. The banking system is the Achilles’ Heel, however, and if there’s a major financial crisis, things could get ugly really quickly.

  • Adam

    Scott, interesting, thanks for the info. It seems that whether to use purchasing power parity depends on what you want to compare. If you want to compare the general living standard, then you should use PPP, but if you want to know what kind of military hardware 3% of GDP will buy on the international market, then you should use absolute dollar amounts.

  • Sam_S

    “. For everything that is overstated by state firms or local officials trying to look good, things are understated by private firms and individuals ”

    Sounds like you’ve been in business here, Scott! Hard to say whose figures to believe, but things here in the developed zones are really booming, and it’s mostly private business. The big SOE’s….state is trying to unload them all. Guess who’s buying them? Chinese entrepreneurs! Hopefully, the new owners will make good on some of the debt, but there are dogs on the books that no one wants, and the banks will eat plenty of bad loans. One thing never mentioned in the analysis of the “impending” bank crisis here is that the banks aren’t as leveraged as most Western banks. Deposits by individuals are huge, and they stay in the bank for the most part. Credit card debt is unheard of….on and on. It’s a very different system, and I’m not saying it’s invulnerable, but I don’t think it’s as fragile as often hinted.

    S

  • Scott,

    Very interesting and informative stuff. Thanks.

    I have heard that China’s big problem is with its banking system which is state-run, archaic and unresponsive. Any truth in this?

  • Katherine

    “Bear in mind that China’s economic figures are all made up. ”

    Of course. Having lived in a socialist state I even know the technique (hint: you tell your boss only what he expects to hear).

    BTW, has nobody wondered how it is that China has been growing by roughly 8% for pretty much entire decade? Not 5% one year and 12% in another, but 7.8%, 8.2%, 7.9% etc. Damn, they are gooood!

  • David Gillies

    If we take the Grauniads figures at face value then they’re rubbish. UK GDP is near £1 trillion. Estimated growth for 2004-2005 is 3% p.a. i.e. 6.1% over the period. So at the end of 2005 the UK GDP will be over £1 trillion. £570 billion at an annual growth rate of 8.5% for two years gives £671 billion.

    I have no idea whether the figure given is correct – it’s hard enough to measure GDP in open societies like the UK, but on the face of it the Grauni’s figures don’t add up. Assuming starting values of £1 trillion and £570 billion with growth rates of 2.5% and 8.5% for the UK and China respectively, the two figures don’t become equal for

    (ln 1/0.57)/(ln 1.085 – ln 1.025) = 9.88 years.

  • Scott Hillis

    Sam’s got a couple of good points. They have jumpstarted reform of the state sector this year with the creation of a special ministry-level commission to act as a sort of clearing house for state-owned firms. Apart from about 200 of the biggest and most crucial firms, they want to sell state firms to other companies, investors and individuals. This will take a while to play, and there’s sure to be plenty of shenanigans, but a lot of folks think this commission is one of the big reasons to be optimistic about reform over the next few years.

    The banks are in a bad way but they are able to stay afloat because there is more than a trillion dollars worth of savings in them. This is because the Chinese saver has very very few investment options. There is the Chinese stock market, which has been in a protracted slump and is seen as little better than a casino (one noted Chinese economist said casinos were actually better because at least they had rules). China does issue local currency bonds with yields better than the bank savings rate, but there are always huge crowds that line up to get them as soon as they are announced, and there’s not nearly enough to satisfy demand. Of course the yuan currency is not covertible, so there’s no way for Chinese to invest abroad. And foreign banks operating in China can’t take deposits from Chinese. Now the interesting thing is that under its WTO committments, China has to let foreign banks do yuan business by the end of 2006. So the Chinese banks will actually have to compete for deposits rather than taking them for granted.

  • m-james

    hi can anyone tell me the 6th biggest economies in the or the 6 richest and the size in trillions of dollars approx.

    i im told its…

    usa -by a long way

    then
    japan

    then followed by
    germany
    uk
    france?

  • ADS

    Things really are changing fast in China.
    Take for instance the Shanghai skyline
    That didn’t exist only a decade or so ago but now a true city is being born.

    Seeing is believing and for those who are skeptical i think u should visit the place then visit the place again a year later and i guarantee u that u will not recongise the place.