Rand's analysis of the restatement of the purchasing power parity (PPP) calculation for China is incomplete. As I've pointed out before, the revised 2006 PPP calculation with the economy measured at PPP nearly three times instead of four times as large as at official exchange rates still leaves China with a $2.5 trillion dollar economy (2006) at official exchange rates and $6 trillion if you consider most of what we and the Chinese buy is cheaper in dollars to buy in China than it is in the US. The relevant numbers for long term strategic security are the industrial production growth rate (from the CIA World Factbook on Intelligence) at 22%/year, the labor force of 800 million of which 45% do agriculture (2005) versus less than 1% for the US and the 11%/year real growth rate.

This indicates that China has a lot of head room as its agricultural sector mechanizes and rationalizes farm size. It has a lot of head room because per capita GDP is either $1,900/year at official exchange rates or $4,500/year at PPP. At 8% faster GDP growth than the US, it will catch us in 10 years in PPP or by 2030 at the official exchange rate. At that point it will still have substantial headroom to grow for another decade much faster than the US because per capita GDP at that point will only be 1/4 the US per capita GDP.

Like finding out that Iran doesn't want a bomb, this new statistic is a red herring. China is still on the rise. It's vainglory to hope they just topple themselves like Russia. Just because Iran doesn't want a bomb (if it doesn't) it still has a nuclear program and could have one if it wanted in a quite short period of time. Just because we recalculated the statistics to show that China has a smaller economy, it is still growing fast and with the revised calculations rates likely to grow even faster.

I am sure that single-party government will be a drag on China, but they can still field a super power's worth of hardware once they exceed our GDP. It may take them a while once they are spending as much as the US is on defense to catch up to our technology level, but a tech advantage is not always decisive. Especially if they start outspending us 2 to 1 a decade later while their per-capita GDP is still half of ours.

If they retain the one child system, they will not be able to keep up their growth levels simply because they will be cutting their population down.

I think they will drop the policy at some point, but not before they get a big population hair cut.

I have been studying China extensively since 1989. The 40% reduction reported to China's ecomony still overstates its size by a substantial amount and it 's not growing nearly as fast as you claim. In a few years, it is in fact likely that it will not to be growing at all. The true size of China's economy is unknown -- the PRC leadership has an even worse idea of its size than we do -- and the reported growth rates are based on guesswork. China's inherent instability is a much bigger problem than their non-existant potential to "field a super power's worth of hardware."

Hmmmm.

The problem with China is that each individual city and province is trying to beat each other in the "we're the biggest/fastest growing" race. So there's a huge amount of inflation of statistics going on at all levels.

"At 8% faster GDP growth than the US, it will catch us in 10 years in PPP or by 2030 at the official exchange rate."

At that point, I could give up my job here, pick it up in China at the prevailing wage rate and be just as well off there, as I was here, right?

>>At 8% faster GDP growth than the US, it will catch us in 10 years in PPP or by 2030 at the official exchange rate.

>At that point, I could give up my job here, pick it up in China at the prevailing wage rate and be just as well off there, as I was here, right?

No, per-capita GDP will still be 1/4 the US so wages will be about 1/4 US cash wages. You might be able to live more inexpensively in China depending on your tastes and fluency.

If they retain the one child system, they will not be able to keep up their growth levels simply because they will be cutting their population down.

This is working its way through their economy and in the short term will result in higher labor force participation and faster per-capita income growth leading to more consumerism and a broader middle class. At this point the fertility per couple is 1.3-2 children which is somewhere between Japan and the US. This will result in a 0.1%-1% per year population decrease once the parents of the generation born in 1979 and later start dying off around 2030 and a moderation of industrial labor force growth starting around now. Still with 22%/year increases from agriculture mechanization, a 0.5% decrease due to fewer kids is noise.

The relevant numbers for long term strategic security are the industrial production growth rate (from the CIA World Factbook on Intelligence) at 22%/year

Assuming those numbers are correct. The CIA has a poor track record. They constantly claimed the Soviet economy was growing faster than ours during the Cold War.

Sam,

I thought the whole point of PPP theory was to account for the differences in per capita GDP. According to the theory, identical goods should have identical prices under PPP theory. So, when the US and China are at 1/1, in PPP terms, a mechanical engineer here should be able to buy the same stuff at the same relative prices as a mechanical engineer there. A gallon of milk and a Big Mac and a coke should require the same proportion of relative wages. So if I trade a mechanical engineer job here for one there I should get paid relatively the same and consume relatively the same. That's what the theory says, at least. That assumes the mechanical engineer here and the one there are identical as well.