Chinese economy overtakes the U.S.’s to become the largest | Hacker News Reader

Chinese economy overtakes the U.S.’s to become the largest

marketwatch.com

126 pointsprostoalex136 comments

For comparison, using the more traditional measure of an economy's size, nominal GDP, the US economy is about 2x the size of China's. [1]

[1] https://en.wikipedia.org/wiki/List_of_countries_by_GDP_(nomi...

Having moved between developing and developed countries recently, I was reminded of what GDP in PPP misses. It's even cruder than how inflation is measured through CPI or RPI. In one country it might be cheaper to get services that depend on a lot of labour, like restaurant meals, cleaning and tailoring, but in another country you can walk or take public transport to the restaurant or tailor without the fear of being the victim of a crime. You can buy ketchup for cheaper, but it is not necessarily as safe or hygienic, it won't have seals under the cap in the store, you won't have as many options to choose from, etc. I think in a globalised world and especially when you look at commodidity prices, PPP is good to measure if people have 'enough' to live on in a particular location but for comparison between countries it's pretty meaningless.

yeah, and if china balanced to the US in real terms, all that industry they sucked up would flee thus dropping them right back down

>but in another country you can walk or take public transport to the restaurant or tailor without the fear of being the victim of a crime

That's unrelated to the prices. 3 relatively poor countries are in fact much safer than the US [0], and all safer ones are poorer than US.

>PPP is good to measure if people have 'enough' to live on in a particular location but for comparison between countries it's pretty meaningless.

The overwhelming majority of living costs are local (especially food production), so PPP is a very good measurement. Prices of electronics and oil aren't that important for day-to-day living.

You seem to ignore the fact that, even in PPP, the average Chinese is really poor. It's just that their standard of living is $12k poor, not $7k poor.

[0] http://www.oecdbetterlifeindex.org/topics/safety/

... and the EU is number one!

This exact story was submitted a day ago: https://news.ycombinator.com/item?id=8700954

Weird, must have flowed through too quickly at lunch time, or the original article's title was not good.

I predict this story is going to become another "voyager leaving the solar system" type of thing. By one measure or another this is going happen once or twice a year for the foreseeable future.

Well, we've been watching for the last decade as the predictions were made. Now they are coming true. Many people denied that it would happen and China would be another Japan, for example.

We should be observing history at its slow and steady pace. As India and China lead the world within a century, the United States will have to learn to fit into its new role farther down the ladder. We could be the Great Britain of the 22nd century.

Hardly. China's growth is already sputtering. China will go the way of the Asian Tiger. This is catch up. What's far more concerning is imagining a country the size of China undergoing the current meltdown in Japan.

The American economy sputters too. I'm not sure exactly what you're saying. Can you be more precise and give a time period?

You mean Celtic Tiger?

China's growth is 'sputtering' because the government is starting to make the sort of reforms that everyone said they needed to make to move growth away from being driven by debt-funded infrastructure spending, but were too scared of making because of the short-term costs. Now that that's happening, the media narrative has shifted to "economic growth targets dropped 0.5%; economy in imminent danger of collapse".

> These calculations are based on a well-established and widely used economic measure known as purchasing-power parity (or PPP), which measures the actual output as opposed to fluctuations in exchange rates. So a Starbucks venti Frappucino served in Beijing counts the same as a venti Frappucino served in Minneapolis, regardless of what happens to be going on among foreign-exchange traders.

> PPP is the real way of comparing economies.

So, it's not entirely clear if China is really the biggest economy, or just by using an accounting trick called PPP GDP. Sure, maybe a Chinese middle-class person can buy more Beijing Frappucinos than a middle-class person in Minneapolis, but the disparity in foreign exchange rates still means that an American coming to China can buy more Frappucinos than a Chinese person coming to the USA.

Substitute Frappuccino for a burger and it is the Big Mac index.

http://www.economist.com/content/big-mac-index

Ironically, Big Macs are on sale right now for 10 kuai in Beijing.

Nice. Maybe not in China, but some countries force McDonald's to lower their BigMac price to hack that index.

The Wikipedia page mentions countries doing this, and, seeing the quality and price of Big Macs in some places compared to other Mc burgers, it's not surprising. E.g. the Argentinian one was half price of everything else, it was an awful burger, meat covering half the bun. And it was never advertised, only conspicuously tucked away at the bottom of the menu in a corner of the shop:

http://i.imgur.com/MbCaZnG.jpg

How's it in China, compared to other burgers?

Ah, Argentinian creative economics. I follow their developments from time to time just for the amazement value, this one is new for me, thank you.

For those curious, here is an excellent article about its history, worth the read: (Paywall) http://www.ft.com/cms/s/2/778193e4-44d8-11de-82d6-00144feabd...

(Google cache version) http://webcache.googleusercontent.com/search?q=cache:eFrFcG7...

And another one with some of the juicy parts: http://www.businessinsider.com/a-timeline-of-argentinas-sord...

The bigmac in China is about the same in quantity to the states, it's normal price is just slightly cheaper than the USA version. Now if they would just give me a second packet of ketchup for the fries and ice in the drink, I might not feel like I'm in a third world country.

Try going into a Greek owned restaurant in the US. They give you the greasiest food possible and don't want you to have any napkins.

In my experience this is a terrible metric. The demographics that McDonalds is marketed in different countries varies enormously. I find in Western countries it is seen as unglamorous, cheap and quick food. Whereas when I was in India, for example, it is much more expensive than cheap food you can buy there, and therefore is seen much more as a nice place to go with your family (or girlfriends/boyfriend), and it tends to be middle class people who go there.

I was trying to think of a good alternative product for this index, but I really couldn't think of any single product that is marketed at exactly the same demographic in each country, as well as having comparable market penetration, and being desired by people to the same degree.

Coca cola could fit the bill

This a good explanation, but I have to point out that for this particular example (being able to buy Frappucinos in China because they're cheaper), the opposite is true.

Fun fact: Starbucks is significantly more expensive in China than in America, even if you use the currencies at their current exchange rates.

Not fun fact: I live in China, and I like Starbucks.

Beijing?

I actually haven't been to a Beijing Starbucks, but in Shanghai, Hangzhou and Ningbo, Starbucks products are markedly more expensive. I imagine that for Beijing the same would be true. I suppose I shouldn't speak for China as a whole, as I haven't been to Starbucks all over the country.

They are probably the same price. I was just wondering if you were in Beijing. They have Starbucks almost everywhere now, even my wife's hometown in southern hunan.

Are there any local coffee shops that sever 'western' style coffee? And if so are they also more expensive than Starbucks in the US. Also what is the local equivalent of a cappuccino and what does that cost. PPP generally deals with equivalent goods and not identical goods, especially when the goods have to imported at great expense to one country.

I mean even here in Sweden Starbucks is a good 50% more expensive than your random local coffee shop, so Starbucks probably isn't the best comparison to make.

Yes, and they are, also, ridiculously expensive. A (awful) capuccino can easily cost 30 kuai, where a very nice plate of rice with bacon and garnish from a low-end shop will cost you 10.

The entire drinking coffee outside game is just shockingly expensive in China. At least I haven't found the cheap ones.

1 us ~= 6.15 kuai

Frappuccinos are more expensive in Beijing than Seattle (I know, I have a habit...). Actually, many things in China are more expensive than in the states: if you want the "lower cost of living", you have to be willing to endure the "lower standard of living" that is possible in China without as much stigma as in the US.

If you want a nice apartment, nice safe food, decent education for your kids, a car, medical care, you've got to pay more dearly for it.

What about compared to NY? Also, it might make sense to compare Starbucks in China to a non-us company in the US. Midn you, I understand that PPP does matter (e.g. products imported to both China and USA, such as German cars, will probably be priced lower in China than in USA precisely because of PPP difference), but nonetheless it's just one way of measuring the size of economy, not necessarily the right one.

All other things equal, german cars are going to cost as much in China as they do in the USA because China gets no discount because of it's weak currency, in fact when buying abroad it works against them. They still need to pay the germans just as much hard cash as americans do.

The advantage PPP gives poorer countries is that goods that depend on domestic labour, which is very cheap, get to be equally cheap. Any goods or services that don't depend on that cheap pool of domestic labour don't get that benefit. German labour in Germany isn't cheaper to buy in China than it is to buy in the USA, so PPP is irrelevant.

As an aside, German cars are actualy vastly more expensive (up to 2x or 3x for high end models) to buy in China than in most countries due to severe import taxes, but the base cost of buying the car from Germany to ship to China would be about the same.

[Re. Some BMWs made in China - in which case they're not really German cars]

BMW manufacture some cars in China.

And they are about 2x the cost that they are in the states. Most of these things are more expensive, not cheaper, here.

While that may be true, I still think parents ELI5 explanation of the problem with PPP in this scenario is very good.

When we are looking at the largest economy in the world, we are looking at world wide numbers and as an American or European most of China is going to feel very cheap.

Not if you live here for a few years. There is a lower floor on quality and standards, as well as labor, but don't expect to get more for your money.

Frappuccinos are sold as a luxury aspirational product though. Thats what the PPP adjustment is supposed to adjust for, although the PPP calculation makes a lot of assumptions, and could well not be that good a measure.

Clean air and safe food are luxury aspirationsl products here and just expected in western countries. What is cheap: maybe prepared food if you don't mind gutter oil, taxis since you can't buy your own car without winning the plate lottery, maids who don't really clean, fake alchohol that might kill you. It seems to me that the assumptions are all bunk; rich people take vacations to the states because things are so cheap there.

Or fresh air.

A decent Swedish Blueair will set you back 6000 kuai, but it's still not that great.

> So, it's not entirely clear if China is really the biggest economy, or just by using an accounting trick called PPP GDP.

There is no objective way of measuring the size of an economy.

Imagine some hyper-simplified economies where the only asset produced is computers.

Economy A sells 1000 Apple IIs* per year at $3k each. That means it has a nominal GDP of $3m.

Economy B sells 1000 Retina Macbook Airs at $1k each, for a nominal GDP of $1m.

Which is a bigger economy? Nominal GDP says Economy A is bigger: more dollars traded hands. PPP GDP says Economy B is bigger, since Retina Macbook Airs are much more than 3x better than Apple IIs, so the value being produced is greater. But of course this also means we have to define PPP, which is extremely challenging in the context of any modern economy.

It gets even crazier:

Economy C, the government pays workers $5m total to dig unwanted ditches. Nobody gets a computer.

In terms of nominal GDP, Economy C is bigger than Economies A and B.

>It gets even crazier: > >Economy C, the government pays workers $5m total to dig unwanted ditches. Nobody gets a computer.

Because GDP is not nor was it ever meant to be a measure of how great your country is. It is simply a measure of the total volume of transactions (which correlates to wealth but is far from being the same thing).

Certainly Nominal GDP is a measure of the volume of transactions.

However, PPP-adjusted GDP is intended to be a measure of national income in real terms, or put another way, the amount of value actually produced. Which is how people often intuitively think of GDP.

Um, $5 million to dig a ditch still means no value produced even if it was PPP adjusted.

Nominal GDP: $5mil

PPP adjusted: $0

PPP simply adjusts for local costs. It does not adjust for the value created during a transaction.

Basically, all forms of measuring GDP are 'accounting tricks' to some extent, or to be more charitable they are estimates based on necessarily incomplete data. For example, by its nature the informal sector can't be precisely measured, but its contribution to total economic output can't be ignored.

http://en.wikipedia.org/wiki/Informal_sector

In Economy C, the workers who've been paid by the govt can then purchase 5000 Retina Macbook Airs at $1k each, the govt receives sales tax, apple employees get paid and pay income tax, and apple employees then spend their remaining money buying more Macbook Airs (going by your simpification that the only asset produced is computers) ... net GDP is then some way over $10m and everybody has a computer and is employed either producing computers or digging ditches

I would suggest that hyper-simplified economies are probably not a good model for anything ...

> In Economy C, the workers who've been paid by the govt can then purchase 5000 Retina Macbook Airs at $1k each

You are assuming transaction costs of 0 for international trade. If transaction costs for international trade are zero, then yes, of course the PPP adjustment would be a non-op. In the real world that we live in, equivalent goods often have very different prices in different countries.

Well, in our hyper simplified economy, the macbook airs are produced domestically - it's the only thing produced in fact (apart from ditches I guess)!

They are three separate economies. If they were not, then the GDP examples makes no sense.

Except that apple doesn't want to sell computers for C$, because all it can buy with them is ditches.

Your example is exactly comparing the economies by PPP, without taking into account the exchange rates. The point is that if you establish trade between economies A, B, and C, people in A would figure out they can get a better deal by buying computers from B, hence the exchange rate would rise, and B$ will be worth A$10 or so. And $C will inflate rapidly, with the government eventually going effectively bankrupt.

Point taken, but you could imagine a state of affairs where the costs of trade are so high that the imbalanced prices do actually represent equilibrium, e.g. imagine tariffs are 100,000% and well-enforced. In the real world non-zero exchange costs are the reason why price differences across countries for identical goods aren't just immediately arbitraged away.

>Sure, maybe a Chinese middle-class person can buy more Beijing Frappucinos than a middle-class person in Minneapolis,

No, this isn't what's being said as the number we're talking about isn't per capita.

I guess you could read it as approx 4.3 (1.3bn / 300m) middle class Chinese people, between them, can buy more Beijing Frappucinos than a single middle-class person in Minneapolis ...

(of course this still isn't true as GDP is still only a crude proxy for individual income, it really measures the total of a particular subset of all _transactions_ in the economy).

This is a ranking about PPP. There are about five Chinese persons for every American. The sum of their income will keep getting larger and so will their economy. GDP and economic output don't automatically relate to how well people live but they do relate to the influence a country has over the world.

If we care about how happy people are in their country then maybe we should look at http://www.oecdbetterlifeindex.org/ There is no clear number 1.

That's a really clever site, seems like an elaborate way to say "It depends" when the question is "What is the best country in the world".

If housing in the UK is a 6/10 I don't want to know how are 4/10s or worse.

Agreed. UK housing is a third world problem in a supposedly first world country.

Interestingly if you put in the cliche American free market priorities (jobs, income high, safety, work life balance, environment low, everything else in the middle) the US does come out top (as opposed to high but not top on a more even measure).

The same things seems to happen if you put in the sort of priorities other countries are generally believed to hold (so put in the environment, satisfaction, work life balance and so on and the Scandinavian countries leap to the top).

So if there is any truth in the cliches, countries do seem to optimise for what is important to them. Which I guess is what you'd hope happened.

As an aside there doesn't seem to be too much you can do to stop Australia being a great place to live - they don't have a slider for "Deadly animals".

Government surveillance would be a good slider. Commonwealth countries are notoriously short on protections for things like that.

Their health index seems... unreliable.

http://www.oecdbetterlifeindex.org/topics/health/

> Australia being a great place to live - they don't have a slider for "Deadly animals"

Australia has poisonous snakes and America has grizzly bears -- only New Zealand can claim no deadly animals.

Obviously you have never met a drunk kiwi.

Kiwi fruit are actually from northern China and weren't introduced to New Zealand until the 20th century.

Kiwi is slang for New Zealanders[1]. It is also a bird native to New Zealand[2].

[1]: http://www.urbandictionary.com/define.php?term=Kiwi&defid=20...

[2]: http://en.wikipedia.org/wiki/Kiwi

Not sure if that's just compounding the joke, but if not - http://en.wikipedia.org/wiki/Kiwi

The submission was about China, not New Zealand, so forgive me for being a bit bemused.

Grizzly bears don't hide in relatively short grass and are very rare and limited to certain areas, and nor does America have spiders that bite your ass when you are trying to poo. Well, we might, but they aren't deadly.

Australia also has crocodiles, box jelly fish, sharks, lethal spiders...

I don't think that I'm imagining that Australia has more species of lethal animals than any other country.

EDIT: Just to be clear, I'm not saying Australia isn't a great place to live. I've only been to Melbourne and then only for three weeks but it seemed great. There are just lots of things which can kill you there (though the Australian's have naturally got very good at stopping that happening).

As an Australian the thing that makes Australia a great place to live is the same that makes it suck - distance. It does have California's weather without the risk of earthquakes which is hard to beat :)

But does it have California's Jobs? :)

I don't know of anyone called Steve Jobs in Australia, no.

What about drop bears?

The deadly animals in Australia are the same everywhere - people. The wildlife does far, far less damage.

Any deficiency in the "Deadly Animal" slider is easily balanced by the massive surplus on their "Ute Availability" slider.

Or maybe we should stop moving the goalposts because this article isn't about anything per-capita and isn't titled "Chinese quality of life tops the US". It's about total economic might.

No lets keep modifying the model so we come out on top until it's no longer ignorable... after that we'll just lie.

This just in, according to songs written by Jim Morrison the west is better 100% of the time.

Yes but if you talk about economic might, then PPP doens't make much sense either.

Why keep moving the goal posts as others have said? They have more people and more land. Why is this surprising?

PPP is supposed to be about "how well people live" by material measures. But, as you point out, material measures don't always accurately reflect quality of life.

Other people who posted here claim nominal GDP is how you compare nations, but that's got problems, too: Is US overspending on health care really adding to GDP? Is military spending, Homeland Security, cops, prisons, adding to GDP, or those costs and drags on our wealth? Is financialization adding slushy numbers to GDP?

Look at the US productivity numbers. Impressive! But is our spending on health care really productive? Military? Etc. There is a ton of fudge in US economic numbers.

I'm sure China's numbers, with the state enterprises, have a lot of squish to them, too. But the US is overtly fooling itself in many ways.

Based on local purchasing power, so the title is misleading.

"Yes, when you look at mere international exchange rates, the U.S. economy remains bigger than that of China, allegedly by almost 70%."

I don't really understand the fascination with nominal GDP, be it in US$ or PPP. Those numbers are heavily influenced by the size of a country's population, which according to wikipedia ranges from something like 100,000 all the way up to 1.3 billion. That's four orders of magnitude!

That's like comparing a Formula 1 car and a Peugeot 107, and then deciding the guy in the Formula 1 car is a better driver because his lap times are faster.

I find the analogy slightly ironic, since the best driver in formula 1 is indeed determined not only by his own skill, but also on the basis of his car quality.

Because each set of numbers measures a different set of things. Singapore and Luxembourg may have a larger per capita GDP than the U.S. or China, but the absolute size of their economies is far too small to allow them similar amounts of military or diplomatic influence compared to the larger countries. Likewise, a small country where everyone earns a lot of money is more attractive a market for a company selling luxury goods than a country where the total GDP is thinly spread across a large but destitute population.

Where's India on the list? It's as big as China. The point is that since the 1870's the United States was bigger, even with a large population difference. It's certainly noteworthy that China has caught up, or the U.S. is falling behind.

Whether it is or not doesn't really matter. The Chinese economy has been doubling every 10 years or so since 1980. So if it isn't the world's #1 now, it very soon will be.

The same was said about Japan when it was on the up.

China is 1 billion plus people. They have a large role to play in the world economy unless they do something really stupid or terrible. They were the largest economy in the world throughout much of history, if I recall correctly.

From the Sui (late 500's) to the mid-Qing (around 1750) most historians seem to say they were, though it's hard to say whether the Han (220bc-220ad) or the Roman Empire was "larger".

China goes up and down throughout history. Many Chinese seem to believe that China can only go up now, just like Chinese real estate prices.....

Maybe you've seen the "China 2049" adverts that popped up everywhere around China a few months ago promoting, among other things, an equal standard of living with Western countries by the 100th anniversary of the republic's founding. I guess they're designed to keep Chinese motivated to grow the economy further.

A fair point, but there are still some crucial differences:

* Japan was (and is) effectively a US military protectorate. It could follow its mercantilist strategy up to a point, but it still had to capitulate to American demands (e.g. to open up its economy + stop putting downward pressure on the yen). China has no such restrictions and does not have to open up.

* Overall the Chinese economy is far bigger and the US is far more dependent upon it than it was upon the Japanese economy in the 90s.

China still looks like it may be facing a debt-crisis the likes of which Japan had in the 90s.

About 100 million people in China are surviving on less than $1 a day

http://www.chacha.com/gallery/6490/15-things-china-doesn-t-w...

Beware of China. They are not America. They must be evil. And while you're at it, check out "The 10 Ugliest Celebs According To Amanda Bynes".

What a terrible choice for source.

Yeap. They've been raising millions from poverty each year, and they're finally down to less than 8% earning less than $1.

Regardless how you measure, they are HUGE. And getting bigger at rate we can't match. I wish them all the best.

This doesn't diminish size of US economy. I think this opens up more opportunities for all of us.

Apparently if count numbers of cups of coffee, okay. But if count number of Cadillac cars or equivalent, number of three bedroom, two bath houses or equivalent, etc. apparently not. If compare GDPs at the present exchange rate, the US remains way ahead.

Why does total GDP matter so much? China has over a billion people. A much more accurate metric is GDP or even PPP GDP per capita.

Only when China has 3x larger economy than US economy will it be of the same size per capita to the U.S.

On a per capita basis the US is currently 10th (Qatar, Luxembourg and Singapore are the top 3).

I like your name. I imagine, you would have signed up as legitquestion, but legitquestion was too long, correct?

-justquest :)

Yes :) I signed up just to ask this one question!

Because on the global power scale it doesn't really matter if half your population is starving or not. And if you want to compare the peoples wealth, remember the one percent rule. How much richer does the US have to be for its bottom 50% to be as wealthy as The Netherlands' bottom 50%?

It's all numbers games, this number is about global economic power, the sort that could have all sorts of real (nasty) consequences.

It's not at all about real global power, it's about domestic economic capacity. As soon as China tries to start exerting it's economic muscle abroad, it has to compete on international terms which means adjusting costs to take advantage of domestic costs doesn't matter anymore.

For example, does China's GDP at PPP 'equality' with the US mean it can fford as many nuclear submarines as the US, as many aircraft carriers? As many advanced state of the art stealth bombers, fighters, tanks, spy satelites and naval bases? No, it doesn't, all it realy means is it can afford as many roads and bags of rice as the US.

As soon as China starts investing in, developing or buying international standard technology and eqipment it has to start investing or spending international standard capital to do so, and PPP doesn't help anymore. Even in the case of 'soft power' such as financial support and investment in other countries, that has to be done in foreign currency. Suddenly the domestic purchasing power advantage of the Yuan becomes an equal and opposite disadvantage.

>It's not at all about real global power, it's about domestic economic capacity. As soon as China tries to start exerting it's economic muscle abroad, it has to compete on international terms which means adjusting costs to take advantage of domestic costs doesn't matter anymore.

The entire reason the GDP and PPP GDP is so out of whack in China is because it intentionally suppresses the value of its currency to subsidize its exports.

>For example, does China's GDP at PPP 'equality' with the US mean it can fford as many nuclear submarines as the US, as many aircraft carriers? As many advanced state of the art stealth bombers, fighters, tanks, spy satelites and naval bases? No, it doesn't

Yes it does because all of these things require domestic manufacturing capacity. It's doubly true for military hardware in fact - just as the US doesn't want its submarine parts made in China (especially chips), China doesn't want its submarine parts made in the US.

>As soon as China starts investing in, developing or buying international standard technology

China is becoming international standard technology. Its mercantilist strategy has paid off since it has become the manufacturing hub of the world.

>Even in the case of 'soft power' such as financial support and investment in other countries, that has to be done in foreign currency.

Only if the foreign country doesn't want your currency. China just started buying $400 billion in gas from Russia in RMB though, so...

> Yes it does because all of these things require domestic manufacturing capacity.

But that's manufacturing capacity it doesn't have for technology is also doesn't have. To get it will either take buying it in at international prices (in $), or take take world class investment in technology, training, manufacturing capacity etc. Having cheap rice and roads will help a bit, but it won't come close to closing the gap with the US. To do that they would need to effectively become the US, or something like it and as a result their domestic cost advantage would evaporate. You don't get to move from being a third world country with a third world cost base to being a first world country and keep your third world cost base. The two go hand in hand. That's why Chinese manufacturing is beginning to lose it's price advantages over places like Vietnam and Mexico.

> China is becoming international standard technology. Its mercantilist strategy has paid off since it has become the manufacturing hub of the world.

China has a very long way to go before it becomes a technological rather than manufacturing powerhouse. Assembling high tech iPhone components made in the USA, Japan, Taiwan and South Korea will only get you so far. The value added to an iPhone from assembly in China is only about $10. The same goes for many other high tech goods 'manufactured' in China.

They are moving up the value chain of course, that's why their cost base is rising and hence actualy their PPP advantage is beginning to erode. Japan, South Korea and Taiwan did the same thing, but China are still a very long way from the top.

> China just started buying $400 billion in gas from Russia in RMB though

Russia is desperate. They gave in to humiliating terms from China because the post-Crimea sanctions are bleeding their economy out.

>But that's manufacturing capacity it doesn't have for technology is also doesn't have.

Says who? Chinese technology is converging at US levels.

>You don't get to move from being a third world country with a third world cost base to being a first world country and keep your third world cost base. The two go hand in hand. That's why Chinese manufacturing is beginning to lose it's price advantages over places like Vietnam and Mexico.

Chinese manufacturing has been moving up the value chain since it began its mercantile strategy. It isn't particularly concerned about losing, say, shoe or t shirt manufacturing to Vietnam - because they are strategically pretty useless. It is keeping key industries at home and keeping their cost advantage through a combination of subsidies and suppressing the value of the Yuan. There is NO end in sight for this policy.

>China has a very long way to go before it becomes a technological rather than manufacturing powerhouse.

It's already there.

>Assembling high tech iPhone components

My Xiaomi is pretty much every bit as good as an iPhone and 1/4 the cost.

>Russia is desperate.

Russia is not desperate. This is a story spun by the Obama administration to make it look like Obama isn't weak and ineffectual and that his sanctions actually achieved something meaningful (they didn't).

That was at the root of all those silly stories about Putin sitting alone for lunch at those G20 meetings. It's the most ridiculous, transparent PR ploy I've ever seen, and weirdly it's working.

>>Assembling high tech iPhone components

>My Xiaomi is pretty much every bit as good as an iPhone and 1/4 the cost.

Without taking Simonh's "side" here, you are missing his point, which is that the high-quality screens and advanced ICs are overwhelmingly designed and manufactured outside of China, especially in the countries he listed.

Even a low-end Xiaomi model uses a MediaTek (Taiwanese) SoC fabbed by TSMC (Taiwanese).

China may be moving toward more domestic production of such components, e.g., with modems and SoCs by Spreadtrum; SoCs by AllWinner, RockChip, AmLogic, etc.; or fabbing by SMIC. (On the other hand, I'm not aware of a major Chinese manufacturer of DRAM, NAND, or smartphone displays, for instance. I'd be interested in hearing about them if anybody knows of some.)

In other words, to counter him, it's not sufficient simply to show a Xiaomi phone; you must also show a BOM for one with primarily Chinese parts. As far as I know, one does not exist.

Well, Taiwan is arguably China.

Taiwan de facto is its own government and has laws against fabbing in china, as do most countries in that region.

It is getting much closer to falling under the Chinese sphere of influence as American military dominance in the Pacific wanes and China's increases. I expect it to be gradually swallowed up Hong Kong style in the next couple of decades.

America's 'promise' to protect it will likely be quietly withdrawn.

Either that or we will go to war.

China's bullying of their neighbors has been the best thing for American dominance in the region since winning the Spanish American war. Even Vietnam likes them now. .

Vietnam has liked America more for decades. However, being liked more by Vietnam does not translate to military dominance over the Pacific.

Chinese fleet is increasing in size and the US pacific fleet is shrinking.

Also: what did the US have to say about China claiming most of the South China sea as its own? Virtually nothing. That wouldn't have been the case even a decade ago.

China still doesn't have much of a navy, they definitely don't have a blue seas navy yet anywhere compared to the USA or even the Japanese sdf. Ya, the us is going from 100 to 90 while china is going from 1 to 2.

And that's not even the point: they don't want to go against china directly, there is too much integration. But they definitely want to sell some boats to Vietnam. So the next time china wants to go at it with Vietnam, they will be on a more equal footing.

>And that's not even the point: they don't want to go against china directly, there is too much integration.

Yet another reason why China's regional dominance is increasing and the US is shrinking. It's not just their navy. The US is too inextricably tied to the Chinese economy.

In the last 5 years it's been looking like the US would lose out more if China pulled the trading plug (suddenly cut off exports / let the yuan appreciate) than China would.

Cut off Chinese exports now and the US would suffer a wave of cost push inflation like it did in the 70s with the oil shock. It would not be pleasant. US military planner are aware of this and restrict their chest thumping accordingly.

Cut off Chinese exports and the Chinese would hurt also. They still have nothing near to a consumer Economy. The inflation would really suck for all the money they have stored in U.S. bonds.

Integration cuts both ways.

Samsung: mostly Korea, TMSC: mostly Taiwan, Intel: Israel, U.S., etc...

Globalfoundries: Dresden, Singapore, U.S...

The only company I see with a lot of fabs in China is SMIC, and they're at 40nm, so they sure aren't making the Xiamo's CPU. http://en.wikipedia.org/wiki/List_of_semiconductor_fabricati...

> But that's manufacturing capacity it doesn't have for technology is also doesn't have.

You just moved the goalposts. It's pretty obvious a Chinese shipyard could build a frigate vastly cheaper than a US shipyard. PPP GDP probably doesn't even touch this ratio.

It's true that China high tech is behind the US, Japan, Korea, and Taiwan. For now. That will last a decade, maybe. There are thousands of products that used to be designed outside of China that are now fully Chinese.

pPP moves the goalposts on to each nation's home turf so they get a home player advantage. International influence and power requires playing against the same goalposts as everyone else.

> Why does total GDP matter so much?

Matter in what sense? If you are measuring international influence, GDP probably matters more than per capita GDP. If you are measuring standard of living, per capita GDP probably matters more than GDP.

The USA is only number 10 by that measure, so nobody would care if China got to number 9. Go to Singapore or Quatar to find the richest average people, not the USA.

Because it's not a per capita thing how large a military you can afford, or how strongly you can lobby.

On a per capita basis the US is world's #10.

The US is the most important country in the world because of its aggregate power, of which the total GDP is an important factor.

"most important" is kind of arrogant.

I'm not American though. You can hardly deny it is, or let's say the most relevant.

China is getting there though.

Just one of many reasons why it matters: More Total GDP = More Military Spending.

Those 200 years dominated by Britain and the USA as described in the last paragraph are not yet over, if you add their economic output together again...

Think the current dive in oil prices is only going to accelerate that trend too!

i think its a little childish that the first pic in the page is a pic of a bank with a bunch of garbage in the front. not-so-subliminal msg...

obviously that's why so many Chinese multimillionaires relocate to US.

>Yes, when you look at mere international exchange rates, the U.S. economy remains bigger than that of China, allegedly by almost 70%.

The irony is that the US has been running up debt for decades upon decades. The US economy is equivalent to someone that has an unlimited credit line, who pays absolutely nothing while continuing to spend lavishly.

This article does not bring any new information or shed any light on the truth about our global economy, such as the creation of externalities that deprive human beings of basic rights. All this article does is present an old narrative (the financial news equivalent of race baiting). Grab the datasets yourself, do your own analysis, and don't listen to yellow journalist rags like this which are clearly promoting an agenda.

GDP, PPP, etc are metrics which have a low signal-to-noise ratio, because the speed with which capital moves renders any units to measure economic output meaningless. USD is still the reserve currency for most of the world (at least for the countries who account for the lion's share global economic output). Even if that were to change to RMB or [insert fiat currency], the current corrupted system will continue to exist and exploit. Do yourself a favor and become educated about cryptocurrency. Learn why this current global economic system is corrupt and a new form of enslavement. Then you'll realize that we don't need central banks. You will realize that you are not a child that needs to be constantly monitored by a nanny state. And so your enlightenment begins.

Just curious how you think the US economy could expand without increasing debt.

My understanding is that the amount of transactions occurring is dependent on the amount of money in circulation. The amount of money in circulation is directly dependent on debt through the fractional reserve banking system.

Under the current system, the only way to 'grow the economy' is to increase the volume of transactions or use money creating transactions (bank loan).

Money is created via debt, but the economy expands when people create things of value.

False. The economy expands when the volume of transactions increases.

The GDP hero is a chain-smoking terminal cancer patient going through an expensive divorce whose car is totaled in a 20-car pileup, while munching on fast-take-out-food and chatting on a cell phone. All add to GDP growth. The GDP villain is non-smoking, eats home-cooked wholesome meals and cycles to work.

Well, this really depends on what it means for an economy to expand. The metric that most people seem to use is the sum of all transactions occurring in that economy, denominated in a currency.

In the philosophical sense of economy, where transactions are not necessarily tied to physical units of currency, expanding can mean pretty much anything, from more participants and transactions to goodwill gained through personal relationships.

In the physical reality of the US economy, expanding economy really only means more money or more transaction volume.

>The irony is that the US has been running up debt for decades upon decades. The US economy is equivalent to someone that has an unlimited credit line, who pays absolutely nothing while continuing to spend lavishly.

There is no sensible equivalence or even comparison to be made at all since insolvency is impossible for the US government. Government debt is simply a different thing to consumer debt. Period.

>GDP, PPP, etc are metrics which have a high signal-to-noise ratio

Ironic that you should say this since GDP, PPP, inflation and the rate of government spending are all far more relevant than the overall level of government debt.

> insolvency is impossible for the US government

But the exchange rate for the US dollar crashing by 50% against the pound, euro, rmb, and yen in a single day is possible for the US government's federal reserve.

Yes it is. The exchange rate gradually falling is possible too. Or staying the same.

Also the exchange rate may rise, as actually happened last time US government spending spiked (post crisis).

I read a lot of comments about the "Calculation" It really doesn't matter how you calculate it. China is the number one economy and American is on its way to becoming Japan or worse Greece.

Having a been in China a lot its easy to see why. China is really striving to be number 1. They are setting a goal and accomplishing it. American on the other hand is mired in Bureaucracy and lack of vision for what we want to do. Therefore we can not make progress. When we have goals we accomplish them. What to end foreign dependence on fossil fuels. We are making good progress towards that end.

American needs to think bigger and accomplish hard near term goals. We need to stop saying by year 2030,2040,2050 and think we want to do this in the next 4 years. China as many advantages of US. The things that people say are a disadvantage (Population & Government) are an advantage over the US.

If i was able to be president this would be my stance:

- Immigration.

   - Pay tuition to a 4 year college and graduate. Greencard. Increases intellectual horsepower

   - 3 million Mexicans. Greencard. Increases manpower
 - Energy

   - by 2020 50% of all electric will be generated by non-fossil fuels. 2025 80%.

   - 2025 be the #1 export of oil and coal

 - Budget. balanced by 2020.

 - Military. halved.

 - Education. Spending doubled.

 - Healthcare. free

 - Taxes. flat

 - Infrastructure 7% GDP

What will be the big goals be:

- Moon by 2030 a sustainable colony.

- Mars by 2040 a sustainable colony.

- Mars by 2050 100,000 people

- Population 500,000 by 2040

  "- by 2020 50% of all electric will be generated by non-fossil fuels. 2025 80%."

  "- 2025 be the #1 export of oil and coal"

That's interesting, especially seeing these goals being put together!

  "- Infrastructure 7% GDP"

How did you come to this number? Keep in mind that infrastructure costs depend on a lot of factors, like expropriation of private property, building new infrastructure and up-keeping the existent one in a number of more or less accessible places, development of new infrastructure technology and a lot more. China got a lot of these for almost free: it can afford to expropriate at ridiculous prices, it builds infrastructure with cheap labor and materials (bought at home market prices), it got its hands on new technology cheaply from abroad through various tricks (versus developing it from scratch), and so on. There's a lot to talk about infrastructure and resources allocated to it, and 7% may or may not be the answer.

  "- Moon by 2030 a sustainable colony."

  "- Mars by 2040 a sustainable colony."

  "- Mars by 2050 100,000 people"

Moon and Mars are not fit to be inhabited by humans (for their gravitation being inappropriate, if nothing else).

  "- Population 500,000 by 2040"

You wanted to say 500,000,000 maybe?

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