Has China surpassed US in GDP?

Discussion in 'Economy & Infrastructure' started by SHASH2K2, Jan 22, 2011.

  1. SHASH2K2

    SHASH2K2 New Member

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    NEW DELHI: Did China overtake the US as the world's biggest economy in 2010? New numbers for the GDP of different countries at purchasing power parity (PPP) seem to suggest so. They also suggest India's economy is significantly bigger than previously thought.

    While market exchange rates have traditionally formed the basis for comparison of GDP across countries , this method increasingly came under criticism as it did not take into account the differential costs of goods and services in countries at different levels of development. As a result, the idea of PPP, in which the prices of a basket of goods and services forms the basis of comparison, came into being. While various agencies, including the IMF, calculate GDP at PPP, the Penn World Tables brought out by the Center for International Comparisons at the University of Pennsylvania (CICUP) since 1970 have come to be regarded among economists as the definitive source.

    The yet-to-be-released latest version of the Penn World Tables corrects for biases in past measurements , such as the collection of only urban prices in China, which resulted in China's GDP being understated . Factoring in these corrections has resulted in China's GDP at PPP being revised upwards by 27% and India's by 13% for the year 2005, CICUP data made available to TOI show.

    Economist Arvind Subramanian, senior fellow at the US-based nonpartisan Petersen Institute for International Economics, used the Penn revision as his base to calculate China's GDP for 2010. In his calculations , Subramanian corrected another key anomaly in the calculation of China's GDP, which was the overstatement of its currency appreciation.

    The adjustments increase China's GDP from the current estimate of $10.1 trillion to $14.8 trillion (an increase of 47%, of which 27% is due to the revision in the 2005 estimate, and the rest due to smaller-thanassumed increases in the cost of living between 2005 and 2010). This $14.8 trillion figure exceeds US GDP of $14.6 trillion, Subramanian said.
    "The revised number for India's GDP measured in PPP terms is, in my view, the IMF's 2010 number increased by 13%. So the revision required is not nearly as much as for China. The IMF's number for India is about $4 trillion, and I would put it at close to $4.4 trillion (again in PPP terms),'' Subramanian explained to TOI via email. In terms of world rankings, India would remain the fourth largest economy then behind China, the US and Japan.

    Read more: Has China surpassed US in GDP? - The Times of India http://timesofindia.indiatimes.com/...-in-GDP/articleshow/7333230.cms#ixzz1BhhiOIJN
     
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  3. Rage

    Rage DFI TEAM Stars and Ambassadors

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    In PPP terms, possible.... Although highly, highly improbable.


    From my interaction with Chinese colleagues, China's figure collections are highly specious. The IMF-propagated ICP project in 2005 was not allowed to collect prices from the surrounding areas of the 11 cities it did collect prices from. Ostensibly, this was done to understate the price level and therefore, the cost of living. The Penn Tables chart, sponsored by the Pietersen-institute (which is this project) did slightly better by collecting data from 27 cities and their surrounding rural areas. But even those have disparity-errors, as China's government regulates the ratio of prices and of certain inputs within the construction industry, the agri industry and other key industries. So, any revaluation based on regressive extrapolation is not without fallacy. Let me give you some brief input on how this data was arrived at: The IMF figures for 2005-2010, which, if taken at face value, suggest an increase in the real cost of living in China relative to that in the United States of about 35 percent. Most real exchange rate indices on the other hand (such as JP Morgan, BIS, etc.) compute an an appreciation during this period of between 12 and 20 percent. Analysis of productivity differentials between China and its trading partners, and between tradable and non-tradable sectors within China by the IMF in its Article IV consultation for 2010, would point to an appreciation of the yuan of no more than 10 to 15 percent (the redeeming factor, I believe, and somewhat mitigative of the gross errors in the IMF's computations). The guys at Pietersen-institute then asked: what currency appreciation would be implied for China if it behaved like the average country? Now, Estimates usually suggest that, for an avg. country, currency appreciation corresponds to the difference between growth rate of per-capita GDP for that country and that of the United States (in jargon, called the dynamic "Samuelson-Balassa" effect). A currency appreciation is akin to an average-cost of living increase. Now, the IMF, in its original International Comparison of Prices (ICP) project in 2005, had underestimated Chinese and Indian per-capita GDP's by revising downward by 40 percent relative to pre-ICP prices (this much is true). These Penn tables are supposed to have corrected for that (with much less incomplete, but perhaps, as specious data) by revising China's 2005 GDP per-capita upward by 27% and India's by 13% (their data collection for India however being less widespread). So, taking 15 percent as the best estimate of the currency appreciation in 2010, rather than the 35 percent estimated by the IMF for 2010, requires adjusting China’s 2010 GDP upward by 20 percent (because the increase in the cost of living has been overstated by 20 percent). They then added 27 percent, due to the revision in the 2005 estimate, and came up with a figure of 47%. That is how, they arrived at this.

    Seems a little spurious, to say the least.

    Besides, it is poignant to note: that while the data collected by the Penn World Tables chart for rural-urban biases revises China's PPP-GDP upward by 27% and India's by 13%, it does so for China's PPP-GDP in the year 2010 and India's PPP-GDP for the year 2005. Needless to say, the disparity in urban-rural non-tradable goods' prices is higher for India in the year 2010 than in 2005. And it is higher as a relative ratio to the urban-rural disparity in prices for China in 2010.

    The general point, however, is very correct. The International Comparison of Prices- collected by the IMF did overestimate average living costs and prices, and therefore underestimated per capita income and PPP-GDP's. However, to say that it was underestimated by 47%, is a lil bit too gratuitous.
     
    Last edited: Jan 22, 2011
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  4. Armand2REP

    Armand2REP CHINI EXPERT Veteran Member

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    Chinese PPP is probably 30-35% cheaper than Western countries. It costs nearly as much to see a doctor in China as it does in the US and surgery costs in the tens of thousands of dollars which are paid out of pocket. It might be half the cost of Western surgery, but most people have insurance that only requires a small copay. Getting sick in China will bankrupt you. Food, 30% less expensive for the same level of food. It is hard to quantify when a pound of meat is mostly fat and bone. Property, 20-30% less expensive overall but it isn't like you can pass it on to your children. Education, tuition is about $4,500 a year on average. Far cheaper than the US but on par with French public universities. Income tax in China is pretty cheap, so are water bills. Electric is a bit higher than I expected. If China's PPP surpassed USA, that would mean nearly a 300% increase in their buying power. No Fing way...
     
  5. amoy

    amoy Senior Member Senior Member

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    I'm wondering why I haven't got bankrupt yet??

    many of us in this province have relatives in Brooklyn or Oslo, or Taipei, who can tell different stories abt PPP from yours??

    In China we have insurance coverage so it's almost no "out-of-pocket" cost.

    A pound of meat mostly fat and bone? meat with "no" fat or bone is priced differently??

    Property - why can't be passed down? even up to date there's no inheritance duty in China though there're dscussions in the air for a long time.

    Education - for this thing I may agree with u across areas. but there're loans/scholarships/subsidies
     
    Last edited: Jan 22, 2011
  6. badguy2000

    badguy2000 Respected Member Senior Member

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    the real-wealth creating activity in CHina surpassed that in USA long time ago,because CHina now is biggest producer of almost every item of industry/agricuture products ,from toys to autos,from food to steel,from coal to electricity.

    the biggest part of USA's bubble nominal GDP is occupied by "service section",which is a completely bubble ....
    anyhow, I don't think the service of call centers in USA has no any "high-tech" edge on those in India.
    I don't think that the 100-dollar hair-cut in USA is more "high-tech" than 100-rupee hair-cut in India,either.
    but the same quality service can "create" 10X time GDP for USA than for India.
     
    Last edited: Jan 22, 2011
  7. Rage

    Rage DFI TEAM Stars and Ambassadors

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    You know, this is how I know you are no economist ...."the biggest part of USA nominal GDP is occupied by "service section",which is a completely bubble" ...

    Where the heck do you get these from?
     
  8. Armand2REP

    Armand2REP CHINI EXPERT Veteran Member

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    Look at the price of Subway... I spend 23 quai for a 6 inch Spicy Italian and add 20 quai to make it a footlong. 43 quai for a sandwich you get in the US for 33 quai. Starbucks is 25 for a tall latte. At a US Starbucks it is 20 quai. So much for Chinese PPP.

    119 million out of 1.3 billion have "basic insurance"... meaning a health-care account they and their employers pay into 2/6% of their salary respectively. If costs exceed that account, they are screwed. So basically, no one is covered. Then there is the rural scheme which half the people are signed up for which is free at designated clinics which give shots, 60% of the real clinics, and up to 30% for a hospital that does surgery. Turns out these hospitals that accept it have limited technology and jack up rates once they have submitted the bill to the Ministry of Health. Needless to say these rural poor cannot afford that bill. If you want REAL modern health care, you have to go to gaogan bingfang where the cost is just as expensive as American hospitals. So much for Chinese PPP.

    Yes, I know about pricing of quality, if you want the relative quality you have to pay the relative Western price. Few people can afford it which is why everyone eats fatty meat. I had this duck and noodle soup at Uncles for 28 quai and it was nothing but fat for that duck.

    Because people do not own property, it is owned by the state. You buy a 70 year residential lease. That part of the property law didn't change.

    There is all that in the West too.
     
  9. amoy

    amoy Senior Member Senior Member

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    subway is cheap enough. besides guess u prefer restraunts serving 'Western' foods which are not quite popular amongst Chinese at all. Starbucks (even McDonald, Kentucky alike) in particular is kind of "exotic" for Chinese. Say , how many Chinse drink Coffee? Of course such places charge a premium for those few who enjoy that "niche" taste. Similarly Japanese cuisine is also very expensive.


    On medicare again "no out-of-pocket" cost for urban citizens covered
     
  10. badguy2000

    badguy2000 Respected Member Senior Member

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    here is resource from CIA

    here is from USA DOC
    http://www.bea.gov/national/nipaweb...Table=6&FirstYear=2009&LastYear=2010&Freq=Qtr
     
  11. kickok1975

    kickok1975 Stars and Ambassadors Stars and Ambassadors

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    I believe China’s GDP is definitely higher based on purchasing power than it is based on exchange rate. Probably 7-8 trillion I would say. However, to catch up America, China most likely still has to wait another decade assuming current rate of growth will not decrease significantly.

    In terms of living standard, I would say average Chinese will not reach today’s average American standard in our life time. One reason is we have too many people, the other is we are in such backward and poor condition before and it would take generations efforts to make significant progress.

    Both China and India should spend more efforts on improving average people’s well beings and be worry about only few people get rich and wealthy. In that regard, GDP is just a figure that has less indication of a country’s level of development.
     
  12. badguy2000

    badguy2000 Respected Member Senior Member

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    I have never been to USA..so it is not wise of me to compare the life quality between USA and CHina.

    But I indeed have been to Hongkong and Singapore . Many of my friends also have been to Taiwan and S.korea.

    I do think that PRC's real average lfe quality can catch up with that in Hongkong,Taiwan and S.korea in 20 years at most.

    Furthermore, the real life quality of coastal CHina can catch up with that of S.korea,Taiwan and Hongkong at most 10 years.
     
    Last edited: Jan 22, 2011
  13. Armand2REP

    Armand2REP CHINI EXPERT Veteran Member

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    Japanese is cheap if you go to Kungfu. Can get dumplings, warm milk and tropicana for 8 quai. Of course it will run straight through you. Subway is too expensive accept to go once a week. I can eat out at the Vietnamese restaurant for little more and get free shrimp. Plenty of Chinese drink coffee, what else would be at a Chinese Starbucks filled seat to seat? The lone white guy... me. Of course everyone there has enough money for an Ipad. I really like this cafeteria called JoJus that serves American style Chinese food for 10 quai. That place is packed, have to wait 10 minutes to sit down. Only place I found that serves cheap food that doesn't make me run to the John. I already had a minor bout of food poisoning.


    You edited the details from that wiki paste which are covered in my previous post.
     
  14. Armand2REP

    Armand2REP CHINI EXPERT Veteran Member

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    Considering it is more expensive to shop in Guangzhou than Hong Kong, seems like things are going the wrong way.
     
  15. amoy

    amoy Senior Member Senior Member

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    RMB appreciation against HKD + Duty Free make Hong Kong a "paradise" for consumers. Especially cosmetics and jewellries, and possibly egoods. Sometime discounts are significant over footwear + garments.

    But Hong Kong is also tough, with a wide disparity btwn have's and havenot's. In subways there're always senior people collecting newspapers from passengers to earn some money in addition to their meager allowances. The legistlative council was debating and debating whether to set "minimum wage" in HK.

    Instead of being a GDP mania, China needs a better social security network that makes that growth meaningful for the grassroots.
     
  16. badguy2000

    badguy2000 Respected Member Senior Member

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    it is indeed the cost of daily living in Guangzhou is gradually getting closer and closer to that of Hongkong day by day....however it is just a stunt that " it is more expensive to shop in Guangzhou than Hong Kong" as a whole.
     
  17. maomao

    maomao Veteran Hunter of Maleecha Senior Member

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  18. Tshering22

    Tshering22 Sikkimese Saber Senior Member

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    Is this how you want to come up? :D

     
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  19. Rage

    Rage DFI TEAM Stars and Ambassadors

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    And, you think services are part of a "bull&hit bubble" that don't really exist? I know the decomposition of the US economy. I take issue with your non-chalant, and incompetent, assertion of services being something of a mere "bubble". You obviously don't realize that in the end, all goods provide a service.

    Please, don't be clouded by delusions of your grandeur.

    More, and more, export oriented products in the manufacturing sector are moving toward India:

    http://www.indian-commodity.com/economy/Exports-To-Touch-500-Billion-Dollar-By-2015.aspx

    That may benefit job creation for over a billion Indians. But that doesn't mean our economy was any less "real" than it already was.
     

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