Here Comes China - Moving up to #2 spot in biggest economy rankings

If anyone calls China an emerging economy, giving it special status via the WTO, they are nuts.

China is now about to overtake Japan as the second largest economy, behind only the U.S. and catching up fast.

China raised its 2008 growth estimate to 9.6 percent from 9 percent and said this year’s quarterly figures will increase, narrowing the gap with Japan, the world’s second-biggest economy.

China raised its 2008 growth estimate to 9.6 percent from 9 percent and said this year’s quarterly figures will increase, narrowing the gap with Japan, the world’s second-biggest economy.

Meanwhile Japan's economy contracted 1.2%, India, another emerging economy expanded 6.7% and the United States is just dripping along.

Think there is anything wrong with the China PNTR, the trade agreement with the United States? This agreement will come up on it's 10th anniversary in 2010.

Yes, China is projected to overtake the United States as the world's biggest economy, in about 5 more years.

Meanwhile, China refuses to let their currency appreciate. This is one of the main reasons the trade deficit is so large, China pegs their currency to the dollar.

Then, seems the housing bubble moved to China.

“Property prices have risen too quickly in some areas and we should use taxes and loan interest rates to stabilize” them, Wen said yesterday in an online interview with the official Xinhua News Agency. China will “absolutely not yield” to calls for currency gains, he said.

China’s property prices climbed last month at the quickest pace since July 2008, adding to concern that record lending and inflows of money will inflate asset bubbles in the world’s fastest-growing major economy. Central bank adviser Fan Gang said Nov. 18 that the nation needs to be on alert for stock, real-estate and commodity bubbles as global capital flows into emerging economies.

“It’s difficult to see how serious the government is about cooling the property market,” said Andy Xie, former Morgan Stanley chief Asian economist. “The issue isn’t about introducing new measures but enforcing existing measures.”

In November, real-estate prices in 70 major cities rose 5.7 percent from a year earlier, compared with 3.9 percent in October. Wen reiterated plans to build more low-cost housing and said the government would crack down on illegal activities such as land hoarding that drive up prices.

Clearly China needs to be confronted, directly. They are out to be the biggest global economy, at the expense of other nations' economies.

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Definiton 'emerging' - OMG math & people

GDP is not, as I understand it, the differentiating characteristic of emerging markets. Among other things, per capita income is a significant differentiator. Given the size of the Chinese population, it will necessarily have a very large GDP but that number tells us nothing about the income or standard of living of the average Chinaperson.

Also, I should think the ability to compete in the international markets would be a factor. I’m not sure there are many if any Chinese industries that could compete with American and European capital and technology intensive industries e.g. aerospace, information technology, etc. Emerging countries compete in low cost labor intensive industries like toys and clothes but low cost labor means low standard of living.

More important to my mind, your often raised issue of China’s market and currency statue again brings me back (with no small trepidation) to the issue of math and people economic analysis. It seems to me that math describes WHAT the US situation is vis-à-vis China, but it does not explain WHY. WHY being understood in this context as an explanation of WHO the people are who negotiate our treaties, foreign policies, international currency exchanges, etc. You say there is something wrong with PNTR. But, PNTR is not an act of nature. Someone signs on the proverbial dotted line so to speak. Some people obviously think that all the various agreements that determine our economic relationship with China are in someone’s advantage. Unless and until we know who those people are and what benefit they derive from the China relationship, we do not know the cause of the relationship. If we do not know the cause we cannot make a change. Social change comes from pressure put on the people who are responsible for the situation to be changed. Real people ‘flesh and blood’ people who end up with real money in their bank accounts, not abstractions like the FED or Treasury or the Administration, etc.

This does not mean that I am against or afraid of math. Indeed, I think I have enough statistics education to understand its limitations as a basis for scientific explanations of social phenomena. R square is an invaluable tool for formulating explanatory hypotheses. But, if the terms of the hypothesis do not include real people, then further analysis will only yield another R square – on ad infinitum. Seems to me. What do you think?


Because the WTO gives special rules to EEs, whether or not GDP is given per capita or not, is not the issue.

The issue is China will be the 2nd largest, onto becoming the largest economy, the dominant economy, therefore (as if any EE should be given special rules via the WTO to set tariffs legally and so forth is a separate issue) but China should not be given that status.

It's well documented China has done all sorts of mercantile behavior to dominant the globe economically and per capita or not, in a nation-state situation, that's not how GDP's against nation-states, their currency, their relative strength. That's why GDP on a global comparison scale is not presented as per capita, it's not a relevant comparison when dealing with global economics. You are not comparing individuals (as if GDP is distributed equally, a true piece of fiction there), you are comparing domestic economies of nation-states.

Frankly "low cost labor" is an element within trade theory which can literally destroy a 1st world economy, depending. There is an inflection point in trade theory, which show, you can indeed wipe out a 1st world economy through cheap labor, low costs of production. Enabling the "race to the bottom on wages" by making the means of production mobile is a very common criticism on how trade is implemented.

I don't know what this has to do with mathematics here, but EP is a fact based site and facts, reality are found in the details, including mathematics.

It doesn't help to know who wrote the China PNTR, or that the Clinton administration, bought and paid for, pushed it through, if one does not know the details of that trade agreement and why it is so detrimental to the U.S. national and economic interests.

Citigroup was one of the biggest players behind pushing for the China PNTR and this was due to capital, loans, they financed the 3 rivers dam for instance, but there were a host of multinational's who believed in the mythical 1.5 billion consumer market in China and wanted access....also these same companies, often under the lobbyists "U.S. Chamber of Commerce", do know that when one makes the means of production mobile, one can labor arbitrage wages, so that was a part of their motivation as well.

I cannot find the piece now but the chief architect of the PNTR actually apologized to the world on it and said he was wrong, he gave a series of talks, which I wish I could find. I know I posted them on EP.

Finally, I think you're trying to set up a false debate. The point was to use fact, very stone accurate fact, with mathematics on this site. I have seen so many arguments spring up on blogs and even just yesterday, every major TV cable news show claimed we had a 3.6% holiday sales increase, when one just needs to do a little analysis, even the authors of yesterday's report admitted the extra day skewed the know that reporting that figure was not accurate.

So, the point is many people get their facts wrong. From EIs, to never having even read one line of a WTO trade agreement, to never cracking a book to never reading a single stat, to not understanding say a VAT, which has some pretty odd calculations in it, per item...

yet they will go on and on, arguing on something, when they first do not even understand how something works...
or the MSM will report some headline...when it's completely incorrect.

That's the point of EP, one must get their baseline facts right and in Econ, that usually does involve at least addition and subtraction.

It's not an either/or proposition on EP, it's just saying one has to get their facts right and another idea is to get people firmly grounded in what the actual facts are, even so they can determine some of facts for themselves.

"emerging nation" definition con't

As I understand it, “emerging nation status” is a category defined by the WTO. You have posited that China should not be considered an emerging nation because of the size of its GNP, currency exchange policy, etc. My question:

What are the criteria WTO uses to define ‘emerging nation’? If they do not use size of GNP, currency policy, etc. then there would be no legal basis for the US to take action against China. The US would have to essentially withdraw from the WTO vis-à-vis the ‘emerging nation’ agreements.

As I understand it, based on journalist comments on ‘emerging nation’ status, size of GNP and currency policy are not WTO tests for ‘emerging nation’ status. I have seen references to ‘average GNP’ and political tests such as ‘transition from controlled economy to open economy’.

In short, I’m wondering if you think that China should not be considered an emerging economy because it no longer meets WTO test of that status, or are you saying that regardless of WTO test the US should no longer be bound by its WTO agreement and affect policies that are in our national interests?

I am not advocating any position. I am not asking rhetorically. I am just trying to get some clarification about a very interesting subject. Sorry for dovetailing my question with my favorite (controversial) subject ‘philosophy of social science math and reality’. That just confused the main purpose of my comment. “The devil made me do it!”

Thanks for your always prompt, informative and interesting response.

firstly I question their definition

and secondly I question the favored status this brings in terms of being able to set their own tariff schedules and other measures other nations do not have. It gives a EE enormous advantage in trade.

You won't see my argue against withdrawal from the WTO, but it seems so unlikely, due to politics, then this giving EEs such favored status so they can manipulate trade should stop.

I do think they need to change the criteria for EE, it seems to be "oh, global investors, put your money here" they will have an enormous trade advantage vs. to nations, say some African nations, who could really use some trade protections and foreign investment.

Or simply change what EEs are allowed to do, such as tariff schedules.

There are still a host of actions to take against China, including currency manipulation, EE status as far as I know allows them to use tariffs "legally" via the WTO, but dumping and currency manipulation I don't believe is part of that.