Two words for delusional China bulls: 'PER CAPITA.'
Posted by
JR Crooks on Fri, Jan 27, 2012 @ 05:59 AM
When I hear someone mention China in the midst of a political discussion aimed at understanding our future economic path, I shake my head.
There are very real reasons to give China's economy lots of press. What they have accomplished over the last 30 years -- major reform and a relatively more open economy -- is worthy of recognition. Even the fact that they've been able to maintain a decently high pace of growth through one of the toughest economic times the world can remember deserves some accolades.
But when we start talking about how China is going to overtake the United States, that's when the ignorance rages uncontrollably.
China will not surpass the United States. Not anytime soon.
On any measure that determines global dominance, China pales in comparison to the US. Most people only concern themselves with China's GDP growth rates; but would it not make more sense to consider the total size, based on 2010 estimates, of China's economy ($10.09 trillion) relative to the US economy ($14.66 trillion)?
If that's not enough, let's look at those two very important words: PER CAPITA.
Overall size of an economy is not a perfect indicator of power. So even if China's economy closes the gap, more important is per capita GDP. The United Kingdom ruled the world for quite some time, not because it had the largest economy but because it had the wealthiest economy in the world.
Over the last 30 years, while China was undergoing an economic transformation, the wealth gap between the US and China, based on per capita income, widened ... by a lot. The chart below shows this; it is from the IMF's website:
Since the early 1980s, the PPP per capita GDP gap has grown by $27,000.
So, yes China is making strides forward on many fronts. But it is not catching up to the US on real measures of global importance. And more immediately, China runs the risk of now losing ground ... because they are having trouble managing their economy through a global economic transition period. It has gotten ugly and is bound to get uglier.
We recently explained why it makes sense to be ready for a major China disappointment. You can read it here ...