Economists also note that 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. If the dollar had not dropped against the euro and other world currencies over the past few years, China's ranking would be a notch or two higher. Critics of China's currency policies, including American domestic manufacturers such as steel mills, casters, plastics molders, and machine-tool makers, argue that China artificially depresses the value of its currency against the dollar by as much as 40%.
A dollar spent in China buys almost five times more goods and services than a dollar spent in a typical American city like Indianapolis. 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. Put another way, it makes more sense to think of China's economy as closer to two-thirds the size of the U.S. economy than to one-seventh.
2. The growth of China's economy has no equal in modern history. China's economy has grown so fast that it has taken on the mythic qualities of one of Mao's showcase farms. Since China set about reforming its economy a generation ago, its GDP has expanded at an annual rate of 9.5%. Countries in the early stages of economic reform often come up fast, but not like China. The country is closing in on a 30-year run during which its economy has doubled nearly three times. Neither Japan's nor South Korea's postwar boom comes anywhere close. Nicholas Lardy, an economist at the Institute for International Economics, notes that China grew mightily even during the worldwide economic doldrums of 2001-02.
China is so committed to economic growth that the Chinese often talk as though they can will it to happen. It is a necessary optimism that pervades official Chinese communication. Orville Schell, the author of Virtual Tibet and the dean of the school of journalism at the University of California, Berkeley, draws a parallel between the unity of focus the Chinese demonstrated for anticapitalism and their focus now on capitalism. Schell argues that in both instances there is a willingness to suspend logic and see only bright tomorrows. Both lead to excess. In its capitalist present, China has been willing to overlook the dark side of modernization, seeing economic progress as the solution to all the country's challenges. Even so, every time the worst is predicted for China's economy, it seems to grow faster, create stronger industries, import more, and export more.
3. China is winning the global competition for investment capital. One reason China's economy is growing so fast is that the world keeps feeding it capital. According to Japan's Research Institute of Economy, Trade and Industry, one-third of China's industrial production was put in place by the half-trillion dollars of foreign money that has flowed into the country since 1978. In 2003, foreigners invested more in building businesses in China than they spent anywhere else in the world. The U.S. used to attract the most foreign money, but in 2003 China took a strong lead, pulling in $53 billion to the U.S.'s $40 billion.
With money comes knowledge. The catalytic role of foreigners in the country is still growing quickly; every day China receives a river of European, Asian, and American experts in manufacturing, banking, computing, advertising, and engineering. In 2003, the exports and imports by foreign companies operating in China rose by over 40%. More than half of China's trade is now controlled by foreign firms. Many of these import goods into the country that they then manufacture into exports. Foreign companies have pumped up China's trade volume enough to make it the third-largest trading country in the world, behind the U.S. and Germany and now ahead of Japan.
4. China can be a bully. China can spend, it can hire and dictate wages, it can throw old-line competitors out of work. In just a three-year period from 2000 to late 2003, for example, China's exports to the U.S. of wooden bedroom furniture climbed from $360 million to nearly $1.2 billion. During that time, the work force at America's wooden-furniture factories dropped by 35,000, or one of every three workers in the trade. China now makes 40% of all furniture sold in the U.S., and that number is sure to climb.
