China’s Number 2!

rank2.pngAfter beating Germany for the title of third-largest national economy in 2007, China reached another milestone by recently overtaking Japan as the second-largest economy. Today, analysts are estimating that China can climb all the way to the top and surpass the United States as the world’s largest economy by 2030. Can anybody say go-getter?

For those who were keeping close tabs on China, the economic domination didn’t come as a surprise. Its massive population of 1.4 billion alone could do wonders for global economy!

If those aren’t enough to impress you, get a load of these tidbits on China:

  1. China ranks first in the world’s production and consumption of coal, steel production, and energy consumption.
  2. It is also the world’s largest exporter and the second largest importer of goods.
  3. With an average GDP growth rate of 10% for the last 30 years, China is considered as the fastest-growing major economy.

Is China a mean economic machine or what?

Hah! While the Chinese are partyin’ over their victory, I remain cynical. China’s big picture may be nice but the small details beg to differ. Here’s something the headlines forgot to mention: China’s GDP per capita is still below the 100th rank. Uh-oh.

GDP per capita is a great tool to compare the economic performances of different countries because it takes population into account. GDP per capita, which is calculated by dividing the total GDP by the country’s population, is typically used as a measure of the standard of living of the country. A low GDP per capita implies that China has weak underlying fundamentals and that its people are very, very poor.

Tsk tsk, it does look like China has a bunch of economic roadblocks ahead. International demand seems to have hit a plateau since economies all over the world are also fighting to ward of demons, such as deflation and rising unemployment, on their own. This can’t be good for China’s exports, can it? To top it all off, China already started to implement some tightening measures here and there, making it a challenge for their economy to maintain a strong pace of growth.

Because of that, several economic moguls have already downgraded their growth and inflation forecasts for China. Some even expect China’s annual GDP to fall a few notches below its usual double-digit readings for the next two years. Combine that with muted inflation and China just might start off the Year of the Rabbit on a very weak note.

Wait a minute… Do you smell that? Why, I sense a serious case of risk aversion brewing up ahead!

If China crumbles under pressure, traders could keep flocking to the safe-havens like they have been doing so lately. Risk appetite could turn sour as soon as traders realize that the world’s second-largest economy is standing on shaky grounds. Then again, I don’t think this mean economic machine would give way so easily… After all, they did make it to the number two spot and maybe, just maybe, they could also make their way to the very top.

3 comments

  1. kwamkong76

    For the eighteen people who voted for China passing the U.S.: is there any difference between mercantislist Japan of the 1970s and 1980s and China now?

    Reply
  2. kwamkong76

    For the eighteen people who voted for China passing the U.S.: is there any difference between mercantislist Japan of the 1970s and 1980s and China now?

    Reply
  3. Pingback: 7 Quick Points From The BOJ Statement

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