Thursday, January 3, 2008

China: More guns, less butter.

Recently, two important numbers monitored here at R.O.C. the Boat underwent major revisions:

  • The commonly accepted figure for the size of China's economy was reduced by 40 percent.

  • The estimated number of ballistic missiles deployed against Taiwan by China has increased by 30 percent.

First, discrepancy in the size of China's economy seems to arise from the World Bank's use of way-outdated data sets (originally generated in the 1980s) to come up with the purchasing power parity (PPP) estimates that are crucial when estimating the size of an economy. PPP is a measurement obtained by weighing the relative values of currencies when those currencies are used to obtain identical goods in their domestic markets. Eduardo Porter, who wrote a great editorial for the New York Times on the 'downsizing' of China's economy almost a month ago, put it this way:
Take a 40 yuan serving of noodles at an eatery in Beijing. If the same dish cost $4 at a comparable restaurant in New York, the noodle P.P.P. would be 10 yuan to the dollar. Calculated using a large basket of goods and services, this ratio allows for a more consistent comparison of economies. . .

. . .It turns out that things in China are more expensive. It’s as though we discovered that the real price of the noodles in Beijing was 50 yuan, yielding a P.P.P. of 12.5 yuan to the dollar rather than 10. That means the Chinese are relatively poorer and China’s economy is smaller than everybody thought.

This is not a mere technicality. Suddenly the number of Chinese who live below the World Bank’s poverty line of a dollar a day jumped from about 100 million to 300 million, roughly the size of the United States population. And if you thought China’s energy consumption was dismally inefficient, consider that it still uses the same amount of energy to produce 40 percent less stuff.

As Porter puts it, with the release of the new World Bank figures, China's estimated economic output "lost a chunk roughly the size of Japan’s output." Maybe the World Bank will remember to update their purchasing power figures sooner next time?

The phenomenon of China's shrinking 'overnight' was also mentioned in today's Nelson Report, where the venerable Chris Nelson referred readers to a much more recent article in the LA Times entitled "The Great Fall of China". As China no longer seems like quite the economic juggernaut it has often been made out to be, perhaps the specter of 'antagonizing China' will no longer carry quite as much weight. To add a little more perspective, consider that the United States' economy is currently worth about $13 trillion. Economists previously thought the U.S. would be eclipsed by China's $11 trillion economy in 5 years. Not anymore: China's $11 trillion economy is now a $6 trillion economy.

Secondly, there's the small matter of the missiles China is piling up in its southeastern provinces, with a view toward threatening and forcibly coercing Taiwan. Throughout the second half of 2007, it was estimated that the number of short-range ballistic missiles the PLA had deployed against Taiwan was just shy of one thousand. However, during his final New Year's Day address, Taiwan's President Chen announced an updated study by Taiwan's Ministry of Defense boosts this number to 1,326. Just during President Chen's term alone, the number has increased by almost 700%. The jump in China's arsenal was reported in this article by the Epoch Times; an English-language transcription of President Chen's New Year's Day address can be read here.

These new figures will hopefully generate a more realistic public image of China's adopted role in the world economy and international relations. Combine China's increased poverty figures and drastically slashed economy size with continued missile proliferation and sales of weapons to governments like those of Myanmar and the Sudan, and one quickly realizes that China's role entails a lot more guns and a lot less butter than most of us previously thought.

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