First, the China stories you should skip. Using up my once-per-lifetime pass for such activity, I am about to show a screenshot of a tweet that I myself put out two days ago.
The backstory here is the newly released result of a big, years-long, international (UN) effort to calculate price levels around the world—and thus to improve the "Purchasing Power Parity" figures for comparing spending power in different countries. Simplest example: a few years ago, 1 U.S. dollar was officially worth about 8 Chinese yuan renminbi, or RMB. That rate is not set on an open market like, say, dollar-euro rates, but instead is carefully "managed" by the Chinese government. But if average prices in China were only half as high as in the U.S., then on a PPP basis the Chinese economy would be twice as large as the official exchange rate made it seem, since the RMB would go twice as far in buying things.
The newest results show (to oversimplify) that effective Chinese prices have been even lower than assumed, and therefore the purchasing power of Chinese RMB has been even greater. After these adjustments, the overall Chinese economy is deemed to be about 20 percent larger than previously believed—and therefore either it already has, or it very soon will, "overtake" the United States to become, in PPP terms, the world's biggest economy.
Thus silly (over)reactions like this, from The Economist:
Just for the record, my initials are the same, but the "J.M.F." listed as one of the authors is not me. And this from Bloomberg View:
Headlines and reactions like these are ridiculous, as I'm sure both publications are aware and as each of the articles concedes further down in the stories. Compared with one week ago, when China's economy was much "smaller" than America's, nothing economic has changed in either China or the United States. With these new figures, we may have a closer approximation of how circumstances for China's recently urbanized hundreds-of-millions compare with others around the globe. But the differences not captured by such figures—freedom to or restrictions on travel within a country, who can and cannot go to school, the still-unfolding enormous effects of mass urbanization, the nature and availability of health-care systems, above all the country's environmental catastrophe—are also part of any serious attempt to understand how "rich" or "poor" China is.
Rather than belabor that point, let me turn you to an excellent ongoing discussion at ChinaFile, whose reaction could not be more different from agog headlines about a new Chinese Century. For instance, this installment from Arthur Kroeber, who has been on-scene in China for many years and understands how little such statistics signify:
...this is a “who cares?” moment. It has been obvious for quite some time that China would soon overtake the U.S. in sheer economic size. If one doesn’t accept the current PPP conversion rate then just wait five or ten years and China will be bigger at market exchange rates. But basically, all that this shift tells us is that China has way more people than the U.S.— 4.2 times as many, to be exact. So, as soon as China stopped being fantastically poorer (per capita) than the U.S., and became simply a lot poorer, its total economy surpassed that of the U.S. (And still lags that of the European Union, which is arguably the world’s biggest economy, if one takes economic integration rather than political boundaries as the criterion.) Big deal....
Fundamentally Damien [Ma] is right that this “who’s on top?” discussion misses all that is truly interesting, namely how China and other countries manage social tensions, income distribution and other problems arising from high speed economic growth. Because of its sheer bulk, China is indeed wealthy and poor at the same time, and the responses to that paradox are a far more fascinating target of study than the mere size of the economy.
There is a lot more nuance in that ChinaFile discussion, which I highly recommend. As a handy guide the next time you see some pie-eyed headline about the PPP:
- As a matter of individual or family welfare, this is a reminder of how much poorer the average Chinese person remains than the average North American or European.
- Also on the individual or family basis, the average Chinese person is actually further behind than these figures suggest, because (as Arthur Kroeber points out) so much less of the nation's total output goes to individual consumption relative to Europe or North America, and so much more to infrastructure or export.
- Still for individuals and families, if there were any PPP-style adjustment for environmental costs—epidemic deaths especially in Northern China from air pollution, the emergence of "cancer villages," increased rates of birth defects, destruction of fisheries and arable land—China's wealth would be much more heavily discounted than that of other large economies.
- And if we're considering the national scale, as implied by loose talk of the Chinese Century, then the largest measures of national influence and potential come into play. From universities to global corporations to "soft power" to, of course, the military. No sane person contends that we are anywhere close to the "Chinese Century" in this sense—as Arthur Kroeber and others say in today's discussion, and as I argued at length in China Airborne.
- Plus the ongoing mystery of which statistics out of China can and cannot be believed, and when and why.
China is a big, fascinating, fast-moving society that I learn from practically every day, whose continuing rise has done much more good than harm, and that I do my best to interest outsiders in. But Economist and Bloomberg—come on.
Next, a China story you should read. Over the months I've written about allegations that the Bloomberg journalistic empire has defanged its coverage of China (especially corruption stories), to avoid jeopardizing its terminal-and-data business there. Some previous items here, here, here.