Thursday 15 November 2007

"China is poorer and smaller than we all think": Discuss

Interesting FT piece today on the Asian Development Bank's announcement that China is in fact a lot smaller and poorer than at first thought.

Hence the justification for the World Bank to continue lending money to China when, at the same time, China invests billions in US paper and and has potentially lost millions on the recent dollar decline.

The limits of a smaller, poorer China [FT]

In a little-noticed mid-summer announcement, the Asian Development Bank presented official survey results indicating China’s economy is smaller and poorer than established estimates say. The announcement cited the first authoritative measure of China’s size using purchasing power parity methods. 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 per cent smaller than previously stated.

This more accurate picture of China clarifies why Beijing concentrates so heavily on domestic priorities such as growth, public investment, pollution control and poverty reduction. The number of people in China living below the World Bank’s dollar-a-day poverty line is 300m – three times larger than currently estimated.

Why such a large revision in the estimates of China’s economic condition? Until recently, China had never participated in the careful price surveys needed to convert accurately its gross domestic product into PPP dollars.

This article is potentially important for US-China relations as well as for the Chinese domestic policy. This article deserves maximum coverage as it sheds light on an important issue. As the article concludes:

Finally, both Congress and the Treasury department should recognise the limitations and opportunities revealed by these more accurate data. For example, risks to its impoverished rural hinterland from a sudden large revaluation of its currency loom larger in Beijing’s eyes than in Washington’s. Acknowledging this could smooth negotiations.


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