’China surpasses US GDP, is now no. 1 in world economy’

As we commence 2015, China’s GDP (gross domestic product), the measure of an economy’s total output in equivalent purchasing power, was valued at $17.6 trillion, surpassing that of the United States, which was at $17.4 trillion. These are very large numbers. (Philippine GDP is below $1 trillion, around $700 billion).

In previous years, China’s numbers have outstripped the US: in terms of electricity generation; in total industrial output; and in international trade volume.

‘The economic power game.’ These measures of output by country are often used as indicators of economic clout. The size of big, dominating economies is often used to indicate changing economic power relationships among them.

Total output is not the whole or even the best measure. Output, tempered by population size, is more meaningful. But big countries growing at spectacular rates and conquering mass poverty, as China had done, have no comparison in current or past economic experience. This is truly awesome as an accomplishment.

China’s one-child policy over the last four decades meant that the country’s natural population growth rate was at a negative replacement rate: it takes two parents to produce a child. Even if there is slippage in this plan, China’s population has stood relatively still during this period.

Over the same period, China expanded at the breakneck speed of 10 percent per year. That expansion of economic production has that its rate of growth was also the gain per head of population!

Hence, China’s remarkable growth machine has moved more about half of its population from abject poverty to one of relative prosperity during a visible time of those who have lived in our world in the last 40 years.

Today, the growth per year is down to seven percent per year. This rate of growth is still very high in relation to what other countries are achieving even during prosperous times.

China also recognizes that, opportunities are narrower today than before. To raise growth, China has to look inward to its internal market and no longer as much outward to other markets. Since the world recession of recent years starting in 2008, the opportunities are less and some economies (Europe, Japan) are still in economic crises.

‘The Chinese Century?’ During the early 1990s, there was talk of a “Pacific Century” or an “Asian Century.” The expectation was that a group of countries in the Asia-Pacific region – to including Japan, China and the United States – would play a critical role in the world’s economic fortunes.

It was not contemplated that by the first decade of the 21^st century, China’s progress would continue on its spectacular path in the midst of relative decline of both Japan and the US. The emergence and dominating presence of China, therefore, has been thought to usher in the Chinese Century.

Taking China’s overtaking of the US as cue, Columbia University’s Nobel prize economist, Joseph Stiglitz, wrote a thought-provoking article on the “Chinese Century.” (http://www.vanityfair.com/business/2015/01/china-worlds-largest-economy) Stiglitz primarily addressed the American economic policy establishment and criticizes the shortcomings and sins of commission of US policy-making, especially in trade policy and in crisis management.

Two things need to be pointed out in this context.

First, it is premature to call the next stage as the “Chinese Century.” If indeed it is, that could not be confirmed until we see a series of major actions that have their definite imprints on the course of world developments. Even the Chinese appear to approach, at least outwardly and publicly, the future with trepidation in this respect.

The last century had been dominated by the US – Pax Americana as some historians call it. The weakening and relative decline of the American economic power in world affairs has been apparent, but it is not totally eclipsed. So much still depends on the actions this country takes in the future – and also in what China does.

The era in which we live is filled with small area wars, the clash of civilizations based on militant religion, and commodity supply shocks. The world, however, has not experienced anything like the catastrophic events that crumpled and decimated the strength of existing and formerly significant nation-states as an aftermath of the last two World Wars even though we were brought close to thermonuclear disaster during the Cold War.

The entry of China into the big league does not necessarily usher in a new stage of confrontation along a bipolar struggle for power and influence with the US.

“Harnessing China’s might.” This brings me to my second point. China already plays an important role in the economic affairs of other nations. How do we harness this for the common good: to assure that the world economic order remains stable? This is a point stressed by Stiglitz.

China’s foreign exchange surplus – evidence of its enormous economic success and strength – is the largest by any country, at $3.9 trillion. Such accumulation has helped to finance America’s enormous savings gap in the last two decades and, in more recent times, Europe’s debt problems.

Recent actions of China might appear to indicate its eagerness to play a large role in international economic affairs. China has just created a new infrastructure development bank – the Asian Infrastructure Bank – capitalized at $50 billion, half of which it has provided.

This bank directly competes with the Asian Development Bank. At worst, it could undermine ADB’s preponderance in the region. At best, it could be seen as a supplement in meeting the important development needs of poorer nations in building infrastructure.

Also, China has recently concluded short-term agreements to extend help to economies in crises, even though this is obviously to help out countries that, through their own actions, are excluded from the world’s capital markets.

In recent lightning moves, China concluded yuan-financing swaps with Russia (amounting to $25 billion over three years); with Argentina ($2.4 billion); and with Venezuela ($4 billion).

Would China behave in the same way were it more involved in the management of the World Bank and of the IMF? But to answer this question would involve the reorganization of these international institutions in which China’s capital contribution would be much larger than it is at the moment, a major question for world economic management.

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