August 13, 2005

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Cooling the dragon's breath

Interesting letter in The Economist from Andrew Freris, BNP's Chief Economist in Asia:

SIR – You propagate the canard that, economically, China now rules the world (“From T-shirts to T-bonds”, July 30th). It does nothing of the kind. In real dollar terms (purchasing-power parity valuations are at best controversial, at worst misleading) China has made a continuously declining contribution to global GDP growth from 10% of the total growth registered in 2001 to an estimated 6% in 2004—its share of real global GDP was an estimated 2.2% for 2004. There is also some quantitative flaw in your argument that cheap Chinese exports kept global inflation down, as China's share of global trade (an estimate unencumbered by PPP considerations) stood at 6.6% of global exports and 6.2% of global imports in 2004.

It is the speed of the rise of China's share in global economic and trade flows, as well as the growth of its demand for commodities, that has obscured the fact that China consumes, for example, less than 10% of the global output of oil. So what is truly special about China? Its average position in the scheme of things is still very small, although its absolute speed of growth and its opening economy are a harbinger of growth to come. But all of this is a far cry from controlling the world economy.

Andrew Freris
Chief economist, Asia-Pacific
BNP Paribas
Hong Kong

The point is China's growing impact on the world economy is at the margin, not in aggregate. It will be like that for a long time, even if China's rapid economic growth can continue indefinitely.

Which it can't.

posted by Simon on 08.13.05 at 03:46 PM in the China economy category.


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china economic roundup (iv)
Excerpt: Constructive reading via Howard French, a Foreign Affairs item called “The Myth behind China’s Miracle.”Washington need not worry about China's economic boom, much less respond with protectionism. Although China controls more of the world's expor...
Weblog: asiapundit
Tracked: August 15, 2005 01:53 PM


I agree that PPP is somewhat misleading, however real dollar terms lead us to nowhere either. So what is economists using in their real life calculation, some kind of weighted average of these two?
I assume that every economist uses different equations and comes up with different predictions?
What a horoskopy!

posted by: lin on 08.14.05 at 12:19 PM [permalink]

The global market is controlled only by fear and greed, which leaves economists making stuff up as they go along.

posted by: Bromgrev on 08.15.05 at 08:04 PM [permalink]

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