Big Deal or No Big Deal?

The Financial Times reported today that, due to readjusted figures, China overtook Germany to become the world’s third-largest economy in 2007. While the implications of this development are open to speculation, China surpassing Germany is undoubtedly symbolically significant. This symbolism will translate politically too, as there should no longer be any question that China is now an indispensable force in global finance, and any decision-making made without it would be lacking.

The FT also cited a Goldman Sachs forecast that projects the Chinese economy to overtake that of the U.S. by about 2040. While many will likely regurgitate that statistic hysterically, there is another one that I believe deserves far more scrutiny and alarm: according to the Economist Intelligence Unit, China will outstrip the U.S. in purchasing power parity by 2017. This projection is stunning because of the short time frame of only eight years, and because as of 2007 China was 122nd in the world in terms of GDP per capita using purchasing power parity, behind Egypt, El Salvador and Armenia. What the Financial Times did not mention was whether overtaking the U.S. in purchasing power parity would be due more to China’s growth or the U.S.’s demise.

Obviously, the current global economic downturn throws a wrench in China’s rise. There are reasons for the Chinese to be both optimistic and pessimistic. The optimist could point to the fact mentioned in the FT that there is still plenty of room for the country to maintain relatively high growth rates, as urbanization and technology catch-up “have decades to run.” On the other hand, as the FT points out, the pessimist could just as easily point to the ageing population and rising environmental degradation. Additionally, civil unrest may once again rear its head: a new series of strikes has recently sprung up throughout the country, causing the Chinese government sufficient concern to uncharacteristically meet with strike leaders and attempt some kind of reconciliation.

If there is any one certainty about China’s rise to the world’s third-largest economy, it is that it will be a very long time before it flies under the radar once again.