A Realistic Evaluation of the Emergence of the Chinese Economy
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A Realistic Evaluation of the Emergence of the Chinese Economy

This is an overview of the emergence of the Chinese economy in the first decade of 2000-2009. It shows that China, while making some spectacular gains, still has a very long way to go in order to compete with more developed Westernized countries.

A Realistic Evaluation of the Emergence of the Chinese Economy

By Arthur H Tafero

Professor of Strategic Management, Jimei University, PRC

China is clearly emerging as an economic power in the world. You would have to be living under a rock not to know that. However, some Chinese analysts, as well as many Western political and economic analysts have overestimated the speed and the actual substance of the Chinese emergence. Let’s look at some very basic numbers and make some simple extrapolations from them.

Even if China passes Japan in GDP and threatens to pass the US in GDP, it is not that significant a number. The significant numbers here are the relative populations of the country and the per capita incomes for each. The per capita income of the US is still hefty at 46K, while Japan lags at 33K. When you look at China’s anemic 7K and the world average per capita of 11K, you get a much better idea of exactly where China is at, regardless of their GDP. The problem, of course, is about relative populations. China may have a slightly higher GDP than Japan, but their population is 1.2 billion and Japan’s is 125 million or about 10% of the Chinese population. Percentage-wise (and this is what counts the most), Japanese citizens make almost five times as much money as Chinese citizens. US citizens make almost seven times as much as an average Chinese citizen. These figures are a bit misleading, though.

They do not take into account the unreported income of Chinese farmers and migrants. These people are counted in the population, but their contributions are often not added to the GDP and therefore they drag down the per capita numbers significantly. Most of the wealth of China has been accumulated in its major cities. The per capita income of Beijing, for instance has just topped 11K. And this includes millions of migrants who are not included in the calculations except in the total population. This both excludes the incomes of these migrants and also waters down the actual Beijing per capita income figures. When we add the estimated incomes of the migrants and add it to the existing income of Beijing, the actual per capita of Beijing residents is far closer to 15K, or a little bit less than half of a Japanese citizen and one third of a US citizen.

So in the final analysis, although China has made great advances economically so far in the 21st Century, the simple numbers indicate they still have a long way to go to catch Japan and practically have no chance at all to catch the US in this century. Oddly enough, in a society that was originally based on socialism in 1949, there is greater economic capitalistic disparity in China than in traditional capitalistic countries such as the United States, England, Japan and Germany. These traditional capitalistic countries have evolved to contain a large, solid middle class that stabilizes their economies and allows for the gradual growth of the per capita income levels. China, on the other hand, is a new player in the game of capitalism. And while showing flashes of brilliance at the game, still lags when it comes to including all segments of their society. The gap between the rich and poor in China is enormous and jaw-dropping. They have more poor people than the US, England, Japan and Germany combined, but not nearly as many rich people. The middle class of China is just emerging and in lower in numbers than any of the other four economic leaders. Averaging all the economic models for the middle class category, the US comes in at between 40-45% and England comes in somewhere between 30-35%. Germany is about 20-25% and Japan is about 15-20%. When compared to these numbers, China’s 5-7% size of their middle class is relatively impotent. There are a lot of rich people in China, and hundreds of millions of more poor people, but less than 100 million that would qualify for classification as a member of the middle class by most economic models.

So there you have it. The growing prosperity in China has not filtered down below the fortunate winners at the top of the economic ladder. They still have an enormous working class, a small middle class and a fixed per capita income of less than 7k. These are the numbers; you can make of them what you will, but it seems to me that China still has a long way to go before catching up with Japan, the US, England or Germany.

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