Underestimating China.

by Merijn Knibbe

Real-World Economic Review

(May 09 2014)

The interesting question is not if China’s economy is as large as the USA economy.

The interesting question is when it will be twice as large.

New calculations on production in China and the USA yield that the size of the Chinese economy is about equal to that of the USA economy. This led to denial from a number of (especially: USA?) economists. One of them is Jeffrey Frankel, who states that it’s not about domestic production and consumption (huh … ?!) but only about world markets:

When we talk about size or power we are talking about such questions as the following:

* From the viewpoint of multinational corporations, how big is the Chinese market?

* From the standpoint of global financial markets, will the RMB challenge the dollar as an international currency? …

* From the viewpoint of the IMF and other multilateral agencies, how much money can China contribute and how much voting power should it get in return? …

* From the viewpoint of countries with rival claims in the South China Sea, how many ships can its military buy?

It’s indeed interesting to look at the Chinese market – the car market, for instance (graph).


Let me do the arithmetic: 22 million > 15.6 million + 5.3 million. The Chinese car market is larger than the USA and Japanese markets combined. It might of course be that 2013 was special, while 2014 data reveal a wholly different situation. And indeed, they do. Car sales in China jumped with eighteen percent in February 2014. Oops, that increase should be roughly equal to total car sales in Brazil … Very bad for the environment, I agree. And that’s indeed one of the most important reasons why we should not, literally, underestimate China.


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