China's Revised Economy: One of Most Important Stories of 2007
Although fairly widely reported, one of the biggest stories of 2007 in terms of its affect on the world is the revision of the estimate of China's economy based on "Purchasing Power Parity" or PPP.
The surprising news from the World Bank is that based on less of a difference in domestic prices in China vs countries such as the US, the size of China's economy is 40% smaller than previously thought. This change means that instead of having an estimated economy of $10-trillion, China now has an economy of $6-trillion.
With what amounts to an "accounting change", $4 Trillion of GDP was vaporized! India didn't fare any better as their economy was downgraded by 40%, and Sub-Saharan Africa was downgraded by 25%
Why does this matter? Well, this change in estimating GDP can be world changing.
- For entrepreneurs and companies marketing to China and India's middle class, well um...that slice of the pie has become MUCH smaller. This could mean bad news in terms of attracting foreign investment into these countries. - The fears of the Chinese economy overrunning the US economy by 2012 seem severely overblown now. - Billions of people being poorer than previously thought means that the richer countries have even a larger responsibility to help than before. - China's political stability may be even more fragile with an aging population and no social support system in place, this spells trouble when the available resources are even scarcer than once thought. - With Sub-Saharan Africa being poorer than previously thought, a 25% downgrade likely means that the already tenuous UN Millennium Development Goals have even less of a chance of succeeding.
Buckle up boys and girls...this is going to be one hell of a ride!