China Shrinks
China's economy just shrank 40%, according to the World Bank. India's did the same.
It's not a catastrophic pan-Asian depression, however. The Bank has recalculated the size of the world's economies based on new and evidently more accurate estimate of the effects of purchasing power, or how much people can actually buy. (Measured by exchange rates, economies in the developing world are typically much smaller, sometimes by a factor of three.)
By the older method, the world looked like this in 2005. China is rapidly closing in on the US, with the rest of the world relegated to secondary orbits around the two giants:
This is how the world looked in 2005 using the new methodology, after the Chinese economy has "lost" about $3.4 trillion (nearly the size of Japan, the world's third-largest economy), and India has been shorn of $1.4 trillion (the whole Brazilian economy):
The US is far more dominant, and Japan and Germany remain near-rivals to China in the size of their economies.
We can take two preliminary conclusions from this:
- The day when China will surpass the United States in economic power -- and the things that flow from it, such as military might -- may just have been pushed back by some years.
- It always pays to remember that models are not reality. They may help to explain it, but are often more about a way of seeing the world than about hard facts.
(Graphics generated with IBM's Many Eyes)
Josh Calder
in China, Asia, North America, Economics, India
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