Is China the next America? Part 2: A fake economy

May 27, 2011 § Leave a comment

The rise of China in the last 30 years has seen monumental changes in the way the world functions. The market reforms that began in China during the late 70’s have shown a growth of 10 percent per year with economists saying that such a rapid growth may overcome the US economy, “The implications of China’s continued rapid growth include China’s overtaking the U.S. in overall GDP terms sometime around 2040. Such a large and fast-growing economy will change global patterns of production, trade, and pricing, and also implies adjustments in the balance of global military force projection capabilities.” However, by examining China’s economic practices and environmental problems it is clear that China is not a rising economic star that will topple the United States as an economic powerhouse.

Through calculations by the World Bank it appeared that China was close to catching up with the United States however through revised calculations, “The size of China’s economy is overestimated by some 40 percent”. These revisions included, the prices of goods and services that a country produces and compares countries GDP by converting each country’s product into dollars. This new revision provides a greater insight at China’s society where, “Under the new estimates, the number of Chinese living on less than $1 a day …is nearly 300 million. The earlier estimates put that figure at 100 million.”This puts the difference in U.S. and Chinese living standards much larger than previously thought, “the United States has the largest and most technologically advanced economy in the world, with a per capita GDP of $43,500. China’s per capita GDP is $7,600”Through the manipulation of its currency China is able to enhance its international competitiveness, “Economists are saying Beijing has kept its currency artificially low to keep the prices of its goods cheap and generate trade surpluses”This tactic has violated all established currency manipulation standards putting China at odds with the US, National Association of Manufacturers (NAM) who argue “the yuan is undervalued by 40%”If China continues to artificially manipulate its economy the country will be hurt in the long run due to an overheated economy and inflation increases. As such both the United States and China are facing the sever problems with their country, with China undervaluing their currency and with the United States continuing to print out money (despite having such a high deficit)  it is difficult to say which country is doing better overall if  in both scenarios their real economy is never shown. With its population this poor, China will not be able to raise enough revenue for the vast military build-up needed to challenge the United States and this is excluding the vast environmental problems China faces which will discussed in the next part of this series.

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