Reality Decoded, B.Tech Electrical and Electronics Engineering, SRM Institute of Science and Technology
China is way past the second largest economy number and now is the largest economy in the world.
IMF (International Monetary Fund) in its World Economic Outlook report made this revelation that China has overtaken USA in terms of GDP based on more reliable PPP (Purchasing Power Parity). According to this report Chinese economy now values at $24.2 trillion Dollars where as U.S economy is $20.8 trillion dollars. This makes chinese economy one-sixth time larger than America's.
Traditionally, many economist have used Market Exchange Rates(MER) to measure the size of economy.
Market Exchange Rates (MER)
This method was developed years after the world war 2 and at that time U.S accounted for almost half of world economy. Under this method all the services and goods produced in that country is calculated in their own currency and they finally converted into dollars.
For 2020, the value of all goods and services produced in China is projected to be 102 trillion yuan. Converted to U.S. dollars at a market rate of 7 yuan to 1 dollar, China will have a MER GDP of $14.6 trillion versus the U.S. GDP of $20.8 trillion.
But under this method there is an assumption that 7 Yuan buys same amount of goods in china as $1 in America, which obviously is not the case.
There is a methods called Big Mac Index which is used to measure the disparities in consumer purchasing power between nations. Big Mac in China costs 21 Yuan and when this is converted into dollar it becomes just $3 in which only half a big mac burger can be bought, which means Chinese currency can buy more for same amount of money as compared to their American counterparts. One of the key insights of the Big Mac Index is that a basket of goods in one country can rarely be precisely duplicated in another country. For example, an American basket of groceries and a Japanese basket of groceries are likely to contain very different products. Mac is based on MacDonald burger which remains mostly same in all the countries.
Nowadays, economist perfer using (Purchasing Power Parity) PPP method to calculate the more acurate value of GDP. The Big Mac Index explained earlier is an informal method of calculating PPP. Basically, Purchasing power parity (PPP) is a measurement of prices in different countries that uses the prices of specific goods to compare the absolute purchasing power of the countries' currency.
Thomas Pauken II
On February 14, 2011, international media reports disclosed that China had surpassed Japan to emerge as the world’s second largest economy in GDP (gross domestic product) size.
The news stunned many people around the globe since China’s rapid development and soaring annual economic growth rates had exceeded all expectations.
The Chinese government had overcome all odds to reduce poverty levels in the country, as well as to move forward on remarkable industrialization, urbanization and modernization drives.
Many Chinese cities have transformed into boom towns attracting hundreds of millions of rural migrants to move there in search of higher-paying jobs and opportunities.
The COVID-19 pandemic would seriously disrupt domestic economic activities, but all nation states have been severely impacted by the virus, so China will not lose its status as the world’s second largest economy.
We are entering a global depression era when property prices, the jobs market and retail sales will plummet. People all over the world will confront much more challenging times ahead.
Nonetheless, Beijing has implemented effective measures such as introducing tax cuts, reduced business regulations, major infrastructure building, increasing social welfare benefits and offering generous loans to prospective home buyers and business owners.
Japan will remain in a stagnant growth era, while hitting a recession for the rest of the year. Japan will not be able to surpass China in GDP size nor will Germany succeed as well. China’s economy is vibrant with much more room for growth, especially in the western regions.
Should any other country have a chance to overtake the Chinese economy for the 2ndspot in global rankings, it would be India but that won’t happen anytime soon since we are talking a timeframe of decades not years for India to jump ahead.
But let’s address the growth potential in western China, which has large swathes of territories that are sparsely inhabited. You look at northwest China’s Xinjiang-Uygur Autonomous Region, which is rich in natural resources, underground minerals, along with oil and gas deposits.
Western China has beautiful natural scenery with mountain ranges, rolling grasslands, and bamboo forests. Many international travelers are keen to visit Chengdu, Xi’an and Chongqing.
The agriculture industry is abundant in all parts of China, so Beijing does not need tofear food shortages of sky-high prices on foodstuffs. China is a nation that can be self-sustaining.
They have sufficient food supplies, strong manufacturing bases and the world’s largest population that makes domestic consumption reliable.
Localization is the newly emerging global business trend. This is the belief that all countries should, “make local and buy local.”
The COVID-19 pandemic has taught nation-states harsh lessons that domestic manufacturing should be built up just in case other countries are confronting ‘black swan’events.
China stands tall as the world’s largest manufacturer and exporter but they were rocked by the virus from late January to early April this year. Many factories were ordered temporarily shut down for public health and safety reasons.
But we should still anticipate an economic rebound in China for the second half of this year. We can read more about it from Asia Times.
As reported by Asia Times:
”The country’s economy will be restored in the second quarter as Covid-19 wanes, and see robust growth from the third quarter onwards, he said.
The consumer market has a 1.4 billion population, showing China’s potential to mitigate the impact of the epidemic and pursue development in the long term, said Wang Zhaoxing, another counselor with the State Council.”
China became the 2nd largest economy from a combination of factors.
Vision and execution: Deng had the vision to bring China out of poverty, He created free trade zones in Southern China and attracted FDIs by promising cheap labour. This was the beginning of China's manufacturing prowess. The model in Shenzhen sprouted companies like Tencent and Alibaba, and other regions in China began copying it.
Help from foreign countries: As much as many Chinese would like minimize it today, China would not be where it is today without the help of other countries. The US, Japan, European countries and even Singapore helped China. There was hope that China would grow to become good global citizens.
Hard work and motivation: The Chinese are hard working, driven by the motivation of making money in the new economy. Culturally, the Chinese care a lot about money and they would do almost anything to make money.
Copying and stealing: As foreign companies move manufacturing to China, more trade secrets are exposed to the Chinese. The opportunity to make more money drove many Chinese to copy and steal from the foreign companies.
Unfair trade practices: While China's companies continue to enjoy open access to other countries' market, China closed access to foreign companies to protect Chinese companies.
All the factors above resulted in increasing China's wealth, increasing middle class consumers and creating a class of super rich capable of driving its GDP.
Despite being the 2nd largest economy, China continues to claim status as a developing country to avoid paying its fair share of fees and to bypass stringent conformance to sustainability requirements.
Fok Ten Wong
I think most people are taking the rise of China too simplistic such as cheap labour, copying, stealing, advantage with the WTO, etc.
If that was the case, countries with huge population such as Nigeria, Indonesia, Vietnam, India, Mexico , Bangladesh India, Russia and many south American countries would have achieved similar economy results. Why were China attracting much more FDI than those countries in the past 30 years???
Of course China’s economy achievement was and still is very much related to its political system and the Chinese culture. Hard working, industrious, eagerness to work and hoping to get rich, etc., was the driving force behind all the economic rise. The centralised planning is most crucial and the execution capability of the government was excellent.
As many of the western criticised and tried ways to sabotage, China just move ahead !!
Just go to China and stay for few months if not years, you will understand why China has raised to such heights!!
By investing in education, infrastructure, and building foreign relationships. While half the US curls up in the fetal position at the mere mention of affordable higher education the chinese have 8 STEM graduates for every one in the US and it-s double that for graduate students. While the US wastes $trillions upon $$trillions bombing foreign countries the chinese have been working hard on their new belt and road project which will benefit numerous countries both rich and poor. While the us spends about a $trillion a year on its “defense” budget china has been building up modern schools and modern hospitals and ensuring that their citizens are getting medically insured at a rate of 95%.
Any economy is judge by its GDP and as far as yet china is near about 12.8 trillion dollars economy behind from United States whoes economy or GDP is 21.4 trillion dollars.
So we easily say that china is world second largest economy
China has more workers, while Japan is aging and losing population. As productivity continuously improves in China through better education, decent development policy and heavy infrastructure investment, the overall economy would overtake Japan.