Monday, August 16, 2010

It's official: China is second largest economy in the world...however Per Capita GDP is about equal to El Salvador...So is China rich or not???

The graphs below represent two perspectives on the recent news that China, in terms of GDP, has become the 2nd largest economy in the world (surpassing Japan, second to the US).  It is impressive considering it made no appreciable increase until 1990-1995. 
     The first graph represents a dollar value of national output ("output method").  It shows the move into second place. 

      This second graph shows GDP per capita.  Per capita GDP is found by taking the GDP number for any time period above and dividing it by the population of a country.  By this measure, we get a different perspective on GDP.  Per capita GDP represents in dollar terms how much of the production/national income is attributed to each person.  By this measure, we can see China is WAY behind the US and Japan (many relatively poor countries as well).  Obviously, China's population is very large, so this low per capita figure is somewhat a distortion.  GDP per capita does not tell us anything about how this income is spead among members of the country.  The income gains have not been uniform across the Chinese population, BUT the gains are significant and concentrated in an extraordinary number of people who are starting to excercise consumption power. 

From Robert Reich on this subject:
""...Don’t be misled by these numbers. The important thing isn’t China’s ranking, nor the total value of China’s production, nor even the extraordinary speed by which China has reached #2.
What’s most important is the share China’s production received and consumed by the Chinese themselves. The problem is it continues to drop.
China has dozens of billionaires but the vast majority of the Chinese are still extremely poor. The typical Chinese lives off the equivalent of about $3,600 a year. That puts him behind workers in 126 other countries. (The typical Japanese earns the equivalent of about $39,000; the typical American, $46,400.)...""
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