Everyone is Still Underestimating China

There’s been lots of fanfare over China’s GDP overtaking Japan’s in Q2 2010 (coming hard on the heels of a big ruckus over its DF-21 “carrier killing” ballistic missile and rising tensions with the US over North Korea and the South China Sea). The big debate is now whether China will overtake the US as the world’s biggest economy by the 2030’s (as originally argued by Goldman Sachs in their classic Dreaming with BRICs paper), or whether its nomenklatura authoritarianism, centrifugal tendencies and demographic problems will preclude it from ever challenging Pax Americana. My view is that China is underestimated even by many of its proponents: underlying tendencies in world economics and energetics indicate that China’s GDP will overtake America’s before 2020, enabling it to emerge as the last superpower by the 2020’s.

First, there is a major delusion that affects a disturbing amount of the commentary surrounding the size of the American and Chinese economies. Newsflash: nominal GDP and real GDP are different things! China overtook Japan in nominal GDP this quarter, but its real level of output has been the world’s second largest for almost a decade*. The reason China’s nominal, or market exchange rate, GDP is twice lower than its real GDP is because its currency is undervalued relative to the US dollar – simply put, living in China is a lot cheaper than in America. But it’s not an accurate proxy for the actual output of the Chinese economy, which is now at around 2/3 of the US level (IMF)**. The “purchasing power parity” GDP is better suited for gauging a country’s real living standards and economic strength.

Furthermore, many analysts are making the stunningly incompetent, sub-Econ 101 mistake of projecting Chinese’s 10% real growth rates to its nominal GDP. (Needless to say, this is totally absurd; China’s nominal GDP is growing much faster than its real GDP, because as it gets richer its price levels begin to approach those of the developed world). The convenient result of such calculations is to delay China’s sorpasso of the US economy decades into the far future.

Applying linear projections of 10% growth for Chinese GDP and 3% growth for US GDP sees the Middle Kingdom overtaking its superpower rival by 2017. By 2025, China’s economy is 75% bigger than the US.


Now one may make the entirely valid observation that linear extrapolation of current trends is bad futurism. I agree. China’s GDP growth will like moderate in the years ahead, as China develops and gets less bang for each investment yuan. On the other hand, there is still plenty of scope for rapid catch-up. China today is where South Korea was in late 1980’s and its trend rate of growth is slightly higher at 10% relative to Korea’s 8% from the 1960’s to the 1980’s. As China gets richer, this growth rate can be expected to ease to 7-8% (Korea in the 1990’s) and 4-5% (Korea in the 2000’s).

The US cannot expect to see anything approaching 3% growth in the next decade. The realistic scenario is 1) a private sector deleveraging as households begin to rein back the debt-income ratios to some semblance of normality and 2) massive yearly budget deficits supporting a permanently weak economy at a 0-1% growth level. Think an American version of Japan’s Lost Decade.

In the graph below, China grows at 10% until 2015, 7% until 2020, and 5% thereafter – roughly replicating South Korea’s trajectory from 1985/1990. The US slugs along at 1% until 2020, then improves to 2%. In this scenario, China sails past the US in 2015 and is 60% larger by 2025.


In reality, the world is far more complex than macroeconomics alone can describe. As I argued in Shifting Winds, American hegemony is metastable: though outwardly imposing, an interlinked failure in critical nodes such as energy (e.g. oil shock), finance (e.g. currency flight) and geopolitics (e.g. Iran) can lead to a cascading collapse of the entire  system.  Few will risk sticking their neck out with such predictions beforehand, but once the collapse becomes visible in our rear-view mirror, it will acquire the tinge of historical inevitability.

The American service-based economy is reliant on cheap and reliable petroleum supplies to keep the office plankton fed and mobile, but is put at critical risk by the imminent peaking of global oil supplies. The financial / credit system relies on trust and belief (“credo”) in future growth to keep functioning as an economic fertilizer, but it is threatened by awning US economic disbalances and the possibility of disruptions in energy supplies. Finally, both the energy and the financial crisis can be triggered by a single geopolitical event, such as a successful Iranian blockade of the Straits of Hormuz (e.g. in retaliation for an Israeli strike against its nuclear facilities).

The risk of cascaded collapse would not exist if Pax Americana faced fewer challenges, or if its foundations were still strong and wholesome. They are most definitely not in our era of permanent deficits, tight oil supplies and imperial overstretch. In the worst case scenario, this collapse could manifest itself in a fall in GDP of up to 30% to a new “steady state” output level.

But at least the US will recover quickly, right? Not likely. Though a US dollar collapse will restore competitivity to some of its older industries, global resource constraints will prevent it from ever fully recovering. Why should increasingly scarce energy sources continue feeding the office plankton of American suburbia, as opposed to Chinese factory cities whose products the entire world wants?

Contrary to popular commentary, China is unlikely to be hurt much by an economic collapse in its prime market. Net exports only account for 7% of China’s GDP, so though exports will decline, so will the imports used to assemble exports, and the overall effect will be modest. Though ebbing US demand for Chinese goods will hurt coastal regions, create unemployment and incite low-level protests, it is unlikely to reach a critical level since China can refocus development efforts on the interior and raising domestic consumption (there are numerous signs that this is already happening).

China’s biggest challenge will be the peaking of its coal production and AGW-induced declines in crop yields within ten to twenty years. Mitigating these developments will require a great deal of capital and ingenuity, things China is fortunate to have in abundance. Ultimately, with 20% of the world’s population but just 7% of its arable land, the Limits to Growth may cap China’s peak GDP at not much more than America’s current level.

On to our third scenario. From 2011, some combination of critical system shocks initiates a cascading collapse of Pax Americana, resulting in a cumulative US GDP decline of 30% from peak (this is similar to Latvia’s collapse in 2007-2009). After that, there is a permanent zastoi – unlike in previous emerging market crises, a significant recovery will be impossible in the new world of neo-mercantilism and energy constraints. China will be able to leap past the US sometime around 2013-15 and grow to more than double its size by 2025 – despite the slowing of China’s own growth due to peak exergy and the natural effects of economic catch-up.


What is the probability of each of these scenarios happening? In my opinion, Scenario 1 is pure fantasy. Scenario 2 is what I’d vouch for in “respectable” conversation. Scenario 3 is what I really believe will happen (and what I tend to write about on this blog).

In any case, the general outline is clear: no matter which “prism” you see the world through – be it techno-cornucopian, “realist”, or peakist – it appears that China, by sheer virtue of combining 1.3bn souls with modern technics, is destined to soar past the US to become the leading pole, if not of the world system, then certainly of the Pacific region.

This breakout will be all the more dramatic under the American collapse scenario: wracked by internal decline and preoccupied with internecine politicking, it’s not impossible to imagine the US simply not noticing the ebbing of its influence in East Asia.  Of course, there’s a perfect precedent for this: see how post-Maoist China managed to break past the seemingly impregnable Soviet empire that collapsed into anarchic stasis in the early 1990’s.


[Angus Maddison’s data adjusted to equalize with IMF 2008 data; note that “former USSR” is a very rough estimate].

* There’s a big debate on the reliability of official Chinese economic statistics. Are Chinese statistics manipulated? by Gao Xu is a recommended rebuttal h/t “in the loop”.

** That is also assuming that the 30% downwards revision to Chinese GDP by the World Bank and IMF a few years ago was well-founded and not undertaken out of political considerations to preserve America’s #1 status. If not, China’s real GDP may already be surging past America’s.


  1. “simply put, living in China is a lot cheaper than in America.” This is not just true of China. Even in ‘4th most expensive city in the world’ Moscow, you can eat for about 50-40% of what it costs in the U.S. for the same basic food stuffs (milk, cereals, bread, potatoes, rice, bananas, pelmeni, tomatoes). Moscow is only the 4th most expensive city if you count the cost of things expats enjoy like Starbucks, sushi restaurants, movies and nights out at clubs, and luxury apartments. And this is a comparison based on multiple parts of the U.S. though the North Midwest and Northwest are slightly cheaper than the Northeast, Texas/South, Southwest and Southeast.

    • One more thing to add here: this shows that when 30-40% of average Americans respond to public opinion surveys saying that China is now the world’s leading economy and get tisk tisked by the supposed experts, that the Americansky narodni are right and the experts who talk down to them while rationalizing the massive export of their manufacturing jobs are wrong.

  2. Lastly, lest I monopolize this thread, I would say that America’s bloated housing costs must fall at least another 50% on average despite frantic Fannie/Freddie pumping. Not necessarily in Fargo, ND or Salt Lake City, UT but definitely on both coasts and in Chicagoland – before they make any sense and come even close to matching the fallen real incomes and real 20% under-unemployment of the population.

    In short, all those baby boomers and Gen Xers who jacked up real estate prices with dirt cheap Fed credit expecting Gen Yers to fund their retirements from non-existent high paying middle class jobs are going to lose their shirts. And good riddance, since they’re often the same people who accuse Gen Y of being coddled losers who live with their parents. Um duh, in most of the rest of the industrializing world this is still the case as in high-real estate cost Europe (but Western Europe in particular always lacked for enough land hence the mass emigration of Irish and Germans to the Americas in the 19th century). And why shouldn’t Gen Yers live with parents as opposed to filthy rent houses split with ten strangers?

  3. Lastly there is one more prospect that Anatoly and I would agree to disagree about: if Mr. Obama is America’s Gorby and Yeltsin rolled into one, then America can still produce a kind of Putin of its own. A Jacksonian, probably from the Western states, who will appear tough on terrorism while dialing down U.S. commitments in the Middle East and drill baby drill in the oil shale reserves that the Democrats in Congress have been quietly pushing off limits since 2006. Apparently they seem too scared that despite all the ROEI constraints from steam lifting and burning natural gas to cook shale out of the ground in Utah or Colorado like it’s currently done in the Canadian Athabasca tar sands, some private company might still try anyway despite the government cutting out the Department of Defense as a customer.

    The fastest way America could slash its trade deficit and enjoy at least a modest recovery once the bubbles completely deflate is to export more energy – specifically to China and Asia. Cheap Iranian oil developed by the Chinese is in fact a competitor to heavier oils coming out of Canada, Venezuela, and possibly the U.S. Rocky Mountain basin. Thus I see an American Putin (probably a general or colonel in the U.S. Army in Afghanistan or Iraq right now) telling the Sierra Club to shove it after Utah makes some noises about defying EPA writ when unemployment starts hitting the Recession-insulated Beehive State hard.

  4. Great article, interesting stuff. I wonder if you could explain/debunk the issue about Chinese statistics “possibly being manipulated”. I heard that Chinese routinely understate their own “economic greatness”, possibly out of cultural modesty?

    • This is a good summary: Are Chinese statistics manipulated? by Gao Xu.
      It’s true that rhetorically, China still describes itself a developing, low-income nation. The main reasons for that, AFAIK, is: 1) to aver US pressure to let the yuan appreciate, and 2) to avoid the stringent CO2 emissions reductions that are coming to be expected of rich countries. However, I doubt any major statistics manipulation is occurring to understate its own “economic greatness”. China is far more open than the USSR.

      • Chinese econometric statistics may not be manipulated by the reporting agencies but there is a high likelihood they are wrong for any number of reasons related to the consequences of reporting entities reporting the truth. Historical example: food production during the Great Leap Forward. Recently Credit Suisse independently estimated Chinese income is understated by 10 trillion yuan annually, which reflects the rampant corruption among party and state officials. Gao Xu says only that the statistics are consistent. Every statistician knows to throw away the outliers. Just because published statistics are made to be consistent doesnt mean they are accurate.

  5. AK, wonder if you’ve seen these –

    Chalmers Johnson (E. Asia expert) gives his take on the coming collapse of the American empire, an article tangentially related to China:


    The Daily Mail moans about Chinese moves into Africa:


    Meanwhile, Newsweek says China is only the 56th best country to live in (I’m quite happy to stay in No. 51 for the time being):


  6. I agree with most of this, except that I think that debt will be a far more important proximate cause of the coming US and European economic collapse than anything to do with oil. The current levels of public and private debt are unprecedented in world history.

    What would be the catalyst, the last straw, our age’s equivalent of the archduke Ferdinand assassination? I doubt it will be an attack on Iran. I think the people who’d like to do it are aware of how bad an embargo would be, so they’re not even going to try it. I’m guessing that the last straw will be a default by a marginal European country, perhaps leading to the abandonment of the euro. I wouldn’t be shocked if we saw hyperinflation in the US in this decade. Depression-level unemployment figures, government workers not getting paid, civil unrest – scary stuff. During the last Depression America’s population was less diverse and more disciplined than this time around. This means that there will be more violence this time.

    I don’t place as much importance on the allocation of natural resources as you do. The human mind is almost the only natural resource that counts. Intelligent people will always find a way of taking resources away from unintelligent ones, either through outright imperialism or through trade. As far as peak oil goes, China is entirely capable of switching most of its consumption to nuclear.

    “Ultimately, with 20% of the world’s population but just 7% of its arable land, the Limits to Growth may cap China’s peak GDP at not much more than America’s current level.”

    The European withdrawal from Africa has created a vacuum, which the Chinese are now starting to fill. There’s arable land there, oil, timber, etc.

  7. georgesdelatour says:

    As ever, a very convincing argument.

    It’s interesting the whole Iran thing. The most sane, rational policy for the US – and the West in general – is to make Iran its principal ally in the Middle East.


    1. Iran is Shiite. It does not and can not therefore export the psycho-Islam that Saudi Arabia does to western Muslims. Arguably, boosting the only possible Shiite power in the Middle East is the best way to prevent the Muslim world uniting. In fact, it could even be useful if Iran tests a nuke. It would cause the Sunni states not prepared to accept Shiite preeminence to spend (waste) large sums of money launching their own nuclear programmes. This is money they won’t spend funding Wahhabi/Salafi mosques in Europe and the US. (Of course it might raise the chances of suitcase nukes in London etc… hmmm…)

    2. Iran could help stabilise both Iraq and Afghanistan. Iran is anti-Taliban, unlike Pakistan.

    3. Saudi Arabia is a culturally primitive society. If the House Of Saud falls, it will probably be replaced by an even more primitive Islamist government. Iran is a sophisticated society, which, for the moment, has the Ayatollahs in charge. If the Ayatollahs fall, they will probably be replaced by a more sophisticated government.

    I think Obama needs a Nixon In China move with Iran. But it probably won’t happen.

  8. Great piece, Anatoly. I’d like to think that we in Canada, and specifically on the west coast, are a little more aware than some, as we have a proportionally large Chinese immigrant population. It was noticed some time ago how many Chinese were returning to China, especially after completing a technical or business education here, where it once might reasonably have been expected that indicated an intention to secure work here or in the United States. Many Chinese, especially the young, current-events-aware demographic, say the opportunities are simply more abundant in China.

    Also, China’s handling of Hong Kong’s return to Chinese control was a masterpiece of restraint, not at all what many who consider themselves China-watchers thought they would do. They left Hong Kong pretty much as it was, designated it a special economic zone, and encouraged the big western business investors to stay – which most of them did. I was in Hong Kong in 2008, and the sense of wealth and vigor is palpable. Those who I admire as being able to see into the future better than others suggest this – while a smart and successful pitch in its own right – is also an incentive aimed at….that’s right, Taiwan. Come on back, and nothing will change. You can keep your regional government, you can keep your flag, you can even keep your military. You’ll just be a part of China, an emerging economic juggernaut – what’s not to like? I predict Taiwan will revert to Chinese control within the next 15 years; maybe less.

    Finally, China’s gaining control over the American economy was just a lucky break for them, aided by an idiot president and an easily-manipulated electorate whose understanding of money is limited to throwing it away by the bushel-basketful. I suspect if you looked, you’d find measurable sacrifices China made in order to keep lending America money to pursue its favourite hobby – war – while acquiring staggering levels of American debt.

    Now all they need do is drop into the conversation their mulling about switching to the Euro for their benchmark currency, and the Dow falls like a rock. They’ve already done it at least once, and must have been gratified by the results. They said it was a mistake, of course – Comrade Wu in accounting, such a cut-up, but he was only joking – but the message was clear. Don’t bother us with stupid annoying talk about human rights or what we should do or shouldn’t do, unless you want us to call in a note you can’t pay.

    What I don’t care for from China is their tendency to encourage countries to strip their resources away in thoroughly environmentally-unsound ways in order to make a quick and generous buck. The tar sands is an excellent example, where operations have essentially killed the Athabasca and Peace rivers. That policy is amendable; countries just need to refuse to sell until more sensible practices are adopted. The Chinese are pragmatic, and will change as much as they must.

    • Re China switching to euro, check out this blast from the past:
      In which President of Iraq Saddam Hussein has decided to switch to Euro from dollar for oil payment receipts. Some analysts believe this move played a part in Saddam’s downfall.
      That wouldn’t happen to the Chinese, of course: Americans are not stupid enough to invade China, no matter which currency they decide to use!

  9. Mark sez:

    “Finally, China’s gaining control over the American economy was just a lucky break for them, aided by an idiot president and an easily-manipulated electorate whose understanding of money is limited to throwing it away by the bushel-basketful.”

    Which “idiot president” are you referring to here? US presidents have been helping build up China for decades – hell, arguably since Nixon. American corporations have been setting up shop there since the 1980s. I’m guessing you mean GW Bush, but he’s just part of a larger trend.

  10. You’re quite correct – I was referring to George W. Bush. In fact, when I think of him, the suffix “the idiot” is automatically appended to his name.

    You’re quite right that American presidents have been “building up” China to one degree or another for some time. They did it for different reasons, but mostly for the chance to cash in on what must sooner or later become an enormous emerging market with an appetite for American goods. In this, again to a degree, they were right.

    Only Bush, with his profligate war spending long after it became clear America would not achieve her goals – all on borrowed money that he refused to include in the budget (preferring instead to rely on “emergency supplementals”), mortgaged America to China. China during the reign of other American presidents usually owed America gratitude. Under Bush, America gave up the high ground.

    • I see “Chimerica” as a mutually beneficial arrangement between the two countries, but one that overwhelmingly favors China in the long-term.

      China’s cheap exports to the US kept down inflation, and its buying of US Treasury bonds from the proceeds helps underpin the credit system. These twin factors have allowed normal Americans to keep treading water, even though real median incomes have increased little since the 1970’s and actually fell during the last decade. As such, maintaining good relations with China is a priority amongst the US political elites.

      For its part, China’s export earnings have allowed it to build up a huge, modernized industrial base at record tempo. Furthermore, it is now transferring some of its accumulated foreign currency reserves to buy up land, mineral resources and even governments beyond its borders that will enable it to keep growing in a world of scarcer resources – unlike weaker and less far-sighted developing nations.

      As soon as China feels that it no longer needs the US market, the Chimerica arrangement will come to an end. The result: high inflation, destitution and hyper-depression in the US (no or little growth due to resource constraints); a temporary dip in China that will soon be canceled out by domestic demand (further growth possible because China will have privileged access to resources in Africa, M. East, Australia & Eurasia).

      • I think the relations will be more complex. Europe, including Russia, does export and import on a balanced basis with China. The growth of this country will likely mean that it becomes the focal point of the Europeans who are very much centered around an economic cooperation via the expanding EU. America and China seem to be rather competitors on the same market with the US losing ground as their trade balance with China shows. On the long run, improved economic conditions in China and corresponding consumption instead of lots of saving and investment will open the door for an American economic reorganization in which the many Chinese migrants will play an important role. Sure, US superpower status will likely be lost and the country be more of a great power like Russia today. However, there’s an interesting mindset of analysts to publish impending catastrophes 😉

  11. The current global situation (Pax Americana as you say) is held together by the US military machine, directed by Washington/Pentagon with a mammoth military budget that dwarfs even China. As American influence declines, will the Chinese (and other rising powers) simply move into the void left by US/western dominance? If so, will this be a peaceful transition? I am guessing there will be a feeling of cultural shock in so called western liberal democracies.

    • Thats an important question, will it be a peacefull trnasition? Will the pentagon actually dissapear witha whimper instead that with a bang? and.. if it goes away with a bang, how big of a bang will it be? I can’t picture warmongerers giving up their positions without “fighting”, Worst case scenario, American Fascism.

  12. Mark Sleboda says:

    You very briefly mentioned the challenges that AGW and peak energy presents to China, but seemingly this did not factor significantly into your end conclusion of continuing explosive Chinese economic growth. But doesn’t China host a myriad of exploding environmental problems occuring as a result of their rapid industrial growth – from the overarching AGW, to desertification, toxic rivers, algal blooms of monstrous size, deterioaration of arable land, horrendous air pollution, biodiversity collapse (ex. farmers forced to pollinate entire orchards by hand because of bee population collapse), nitrate and phosphate cycle collapse, solid waste dispostal, etc. etc – that coupled with the synergisitic effects of rising social tensions (>10,000 protests a year and growing), many of which will be caused or exacerbated by environmental concerns, call into doubt any long range projections of continued economic growth? I know that the Chinese government has begun to take the environment more seriously and made some interesting token efforts recently (new Green cities initiative) – but considering the scale, impetus, and practices of the Chinese (authoritarian?) capitalist economy (ex. another giant coal-fired plant opening every week to 10 days in China for the next 30 years) and the tendency of Chinese local officials and businesses to ignore central government environmental directives in pursuit of profits (as outlined in the pages of Foreign Affairs in “The Great Leap Backward” http://www.foreignaffairs.com/articles/62827/elizabeth-c-economy/the-great-leap-backward) suggest that environmental and social problems will inevitably reach a catastrophic tipping point that will upset economic growth projections and likely government stability sooner rather than later (IMHO less than 20 years)?
    seem to indicate that accelerated environmental deterioration is inevitable with a continued commitment to industrialization/modernization

    • That is partly why you begin to see China’s growth beginning to flatten out at the end of Scenario 3, which takes into account energetic & environmental Limits to Growth (IMO the most realistic one).

      While “ordinary pollution” (toxic rivers, air pollution, loss of biodiversity, algal blooms, etc) is certainly destructive and loops off 8% of China’s annual GDP (IIRC), it is manageable – S. Korea also has an atrocious environment but that didn’t stop it from developing to a high level.

      I think the biggest challenges for China will come at around 2030-40. By that period, all hydrocarbons should enter into rapid decline (corollary: average EROEI will be plummeting), while the deleterious effects of AGW begin to predominate. The key question is whether the world – and in large part, China itself – will be quick enough to transition to a sustainable energy system and perform the geoengineering to contain warming from veering into catastrophic levels.

  13. “As such, maintaining good relations with China is a priority amongst the US political elites”. I have often felt that the hysteria of the anti-Russia lobby for the last ten years since Putin started out in charge was in part a misdirection play or an attempt to give the hawks something to do to keep their Military Industrial Complex gravy trains going while China bought up America.

    Talking about war with China has now become financially dangerous, as would be sponsoring any Promethean gambits in Tibet or Xinjiang (the Georgia War marked the end of those in Russia’s near-abroad, with the possible exception of Moldova where Greatre Romanian nationalism might appeal to 10-20% of the population).

    As late as 2003 many neocons were looking ahead to the big confrontation, call it Cold War II, between America and China. Owning Iraq was supposed to be their trump card, along with the Colored Revolutions across Eurasia. But they failed, and never really asked themselves how it would be possible to wage a new Cold War against an opponent who has the capability to wreck your debt-saddled financial system in one stroke.

  14. http://www.firstthings.com/blogs/firstthoughts/2010/08/19/china-and-the-future/#more-20355

    Over at First Things there is a debate about whether the Chinese government is cooking the books. On the one hand, I agree with AK that income statistics are largely meaningless unless adjusted for purchasing power parity (thus $30,000 USD in the U.S. for a family of two becomes something like$ 8,000 USD per year in China, assuming the apartment in Beijing is paid for – a big IF).

    I have met too many Vietnamese or Chinese of late in the U.S. who were going back home for six months to ‘spend time with family’ or ‘study’ not to think that something is going on here, that these folks can live in China or Vietnam much much cheaper than they can in the U.S. on what’s left of their savings if they are unemployed in what was once The Land of Opportunity.

    On the other hand, I don’t expect the Chinese government do be much more honest than the U.S. government and the Federal Reserve when it comes to official statistics. So we have a bit of a quandary here. Will the book cooking, real estate bubbles, and increasing barriers against cheap Chinese goods, plus ecological damage/melting glaciers leading to reduced flow in China’s main rivers outweight China’s strengths? I honestly do not know.

  15. outofasia says:

    I agree that China’s economy is still grossly underestimated. After ten years of visiting and traveling in China, both GDP and PPP figures seem to me to be so inaccurate as to be almost useless. When you consider what you see in China, on the ground—a hundred fairly affluent cities of more than a million people, over 90% mobile phone penetration, TVs, air conditioners and fridges in nearly all urban households and many rural ones too, the $2-a-day poverty story is not believable. Much of the countryside is not that poor, either, with basic utilities almost universal and reliable (though car penetration remains minimal).
    China now accounts for at least a third of global consumption of many key raw materials (copper, iron ore, aluminium, base chemicals), makes more than half the world’s steel, and has energy consumption levels on a par with the US, and I could fill a page with markets that it now leads, from cars down. And yet we are expected to believe that it only accounts for about 8% of the world’s economy? The true figure must be at least 20%, and probably more. Great inefficiencies do exist in its manufacturing, but not that great. Something is seriously wrong with the established metrics on China.

    • This is a very good observation. In terms of a real economy China is much more than 8% of the world’s economy. The GDP of the USA and other western states if fluffed up by the fictional “financial industry”. This “industry” does nothing more than shuffle alleged sums of money back and forth. The financial bubble is bursting because it is decoupled from the real economy, which has been shrinking in the west in the last 30 years.