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November 17, 2007
Chinese Economy 40% Smaller than Thought
A US economist working for the Carnegie Endowment for Peace and citing recent data from the Asian Development Bank estimates that the Chinese economy is actually 40% smaller than previously thought:
Keidel told AFP he made the calculations based on a recent ADB report that made its first analysis of China's economy based on so-called purchasing power parity (PPP), which strips out the impact of exchange rates. The estimate of $5 trillion still makes China's economy the second largest but will now probably not surpass the US economy until 2030. Earlier estimates had the Chinese surpassing the US in 2012 raising security concerns that China could devote far more to its military than it is doing now.
"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 percent smaller than previously stated," Keidel wrote. "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 ADB data was the first using purchasing power analysis, according to Keidel. Based on this new analysis, he said "the number of people in China living below the World Bank's dollar-a-day poverty line is 300 million -- three times larger than currently estimated."
And that number of 300 million Chinese living on a dollar a day is shocking. Given the disparity between rural and urban China, such numbers are the stuff of revolution. And indeed, there have been many demonstrations and even riots in rural villages that have been ruthlessly surpressed by the Communist authorities. With so many being so poor, that does not bode well for China's economic or political stability in the future.
Perhaps this will help change some people's attitude toward China who saw the country as an economic juggarnaut soon to overtake America as the pre-eminent economic superpower. And while China's military continues to buy modern weapons, they are still a long way from being able to challenge the United States except perhaps in its own backyard.