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STRATEGY

China Surpasses Germany as Third-Largest Economy

American businesses to face more competition but more opportunity.
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China's prominence as an exporter as propelled it past Germany to become the world's third-largest economy. But as the nation's ballooning manufacturing industry offers opportunities to American businesses, as well.

Based on unspecified data, China's National Bureau of Statistics revised its 2007 economic growth rate upward last week, from 11.9 percent to 13 percent. This brings the country's GDP to 25.7 trillion yuan, or $3.5 trillion, according to 2007 exchange rates. The bureau did not specify the reason for the change.

This pushes China's economy ahead of number three Germany, whose 2007 GDP was 2.4 trillion euro, or $3.3 trillion, with a growth rate of 2.5 percent.

Dale Jorgenson, a Harvard professor of economics, predicts that the economies of China and Germany will be comparable for some time to come. "China has just barely surpassed Germany," he said.

"It's an event, but it's not as if China was lurking in the back of the ranks," he added. Recent years have seen explosive economic growth in China, thanks largely to the country's increasing prominence as an exporter.

According to Jorgenson, the shift is an important signal Asia has become the world economy's third major player, alongside the US and Europe, and that the three are now balanced.

China has found a trading partner in the US as its economic profile has risen. But Jorgenson stresses that the relationship is a two-way street that provides opportunities for small American businesses. Many things produced in China have components produced elsewhere, including the US.

"There are 200 separate parts of a shirt—even the buttons have parts," he said. "Things are put out for bid every day."

Because of the language barrier to the Chinese market, immigrant businesses are ideally positioned to take advantage of economic integration, Jorgenson added.

Jorgenson expects as the current economic crisis passes, the US economy will be even more integrated with the Chinese, but American businesses will face more competition from Japan and Europe.

"The resistance to globalization is falling away, and people are realizing that this is the opportunity of the century," Jorgenson said.

Last updated: Jan 27, 2009




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