Some observations on the comparisons between the economy of the United States of America and the economy of China, pt1.

The debate regarding the role China is playing in the world economy is relevant primarily because it is expected that the economy of China will overtake the U.S. in terms of GDP (Gross Domestic Product) on a nominal and purchasing power parity basis. GDP refers to the amount of goods and services that exist in a country. It really refers to the amount of money that circulates within an economy which is determined by the extent of production of commodities either in that particular territory or the earnings of another territory that are spent in that territory or nation. The GDP of the Chinese mainland, Hong Kong and Macau is $8.2 trillion as compared to the U.S GDP of $15.6 trillion, as of 2012. The figures seem to suggest that China will overtake the U. S pretty soon. It seems even closer when one measures GDP on a purchasing power parity basis because currently China is worth $12.3 trillion as compared to the U.S with $15.6 trillion. These numbers mean nothing because it will take China years to match America in terms of wealth. This is on the basis of the accumulation of capital, credit/debt, productivity and population numbers. There is no doubt that China will take over the U.S but only when its credit markets become highly developed. If one was to mention wealth in terms of credit/ debt then the U.S far supersedes China. This debt is also on the basis that the US dollar is the reserve currency of the world and that the nation represents a secure haven for investors. I will address debt and credit in pt, 2 of my discussion.

For this post I will focus on the levels of productivity of the two nations and the population. This will not take long to discuss so these are the figures I will use to support my argument. Firstly, the  workforce of China is, according to Wikipedia, 795 million out of a population of 1.3 billion, as of 2013.  The country is growing at a rate of 7-8.5% per annum. This probably means that China adds close to a trillion dollars a year to its GDP. The labour force of the United States however is 155 million out of a population of 315 million as of 2013. The numbers make it  pretty obvious that the United States is a vastly more productive nation than China by 3 times and much more efficient. If a workforce of 155 million can operate an economy worth $15. 6 trillion as opposed to a workforce of 795 million operating an economy worth only $8.2 trillion then it becomes clear. The U.S economy grew between 1-2% in 2012 yet the GDP increased by about $700 billion. China’s GDP increased by about $900 billion at a rate of 7.5%. It means that the US economy is much more developed particularly with regards to the organic composition of capital. The development of the constant capital  (technology, exploitation of raw materials, semi-finished goods etc) in the US economy is vastly superior which is what the numbers suggest. The growth in the constant capital employed in production suggests that one US worker (a feature of variable capital) produces significantly more than one from China with the aid of technology at his or her disposal. Even if China was to overtake the US nominally or on a purchasing power parity basis it would take at least another decade for China to match the high levels of productivity of the U.S workforce. It will still be good to see how much an economy with a workforce of 795 million, with the necessary technological apparatus at its disposal, can produce. I mean the technological apparatus at the level of the United States. This would be one of the means by which China would reach its full potential. I recall an interview on BBC’s Hardtalk  with a Chinese ambassador to the U.K who stated that people should remember that China is still a relatively poor country. The figures certainly support this statement. The hinterlands are inadequately developed and most of China’s growth is limited to the coastal cities. I will discuss this in pt, 3 as well as the vast reserves at China’s disposal. China is not even close to realizing its full potential. This is when you compare this data to the US economy that has exploited most of its hinterland and has settled most of its territory.  

Pt 2 next week.

  All figures in US dollars