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In 2004, the Chinese sold the United States $160 billion more in goods than they bought. Contrary to common wisdom, however, the trade deficit with China does not mean that Americans are spending down the national wealth at a faster pace than ever before. So far, most of China's gains with American buyers have come at the expense of the other countries that once lured American dollars, especially other Asian economies. Americans and the world get more stuff in the bargain.
Even though Americans and the rest of world are becoming aware of China's rise, anyone particularly involved in running a business need to know what is happening today in China.
How is China able to afford the "China Price"?
1. China's economy is much larger than the official numbers show.
In 2003, China's official GDP was $1.5 trillion, which made it the seventh-largest economy in the world. However, this measure of economic statistics from China is suspect. There are various reasons attributed to it such as: -
In competition for development funds, local Chinese authorities have considerable incentive to under-report their growth rates to the nation's central planners.
The government measures only China's legal economy. Its underground economy, made up of both unsavory businesses and more mundane ones that lack a government stamp (and tax bill) is enormous but uncountable.
China's official GDP underplays the true size of its economy because China uses the massive power of its foreign currency reserves to keep the world price of the Yuan marching in lockstep with the dollar. China artificially depresses the value of its currency against the dollar by as much as 30%.
Taking purchasing-power parity into account, the U.S. Central Intelligence Agency estimates that China's economy looks more like one with a GDP of $6.6 trillion.
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* Contributed by -
Syam Krishna V. K. ,
B.Tech. (Prod. Engg.), Kerala University,
MBA 2007, DOMS, IIT Madras.
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