China's economy is 40 percent smaller than most recent estimates, a US economist said Wednesday, citing data from the Asian Development Bank and guidelines from the World Bank.
Albert Keidel, a senior associate at the Carnegie Endowment for International Peace and a former US Treasury official and World Bank economist, made the comments in a report published by the US think tank and in a commentary in the Financial Times.
Keidel told AFP he made the calculations based on a recent ADB report that made its first analysis of China's economy based on so-called purchasing power parity (PPP), which strips out the impact of exchange rates.
"The results tell us that when the World Bank announces its expected PPP data revisions later this year, China's economy will turn out to be 40 percent smaller than previously stated," Keidel wrote.
"This more accurate picture of China clarifies why Beijing concentrates so heavily on domestic priorities such as growth, public investment, pollution control and poverty reduction."
The ADB data was the first using purchasing power analysis, according to Keidel.
Based on this new analysis, he said "the number of people in China living below the World Bank's dollar-a-day poverty line is 300 million -- three times larger than currently estimated."
Keidel told AFP that under these calculations, China's gross domestic product (GDP) would have been roughly five trillion dollars in 2005, compared to some 12 trillion for the United States on the same basis.
This would still mean China's economy is moving ahead of Japan as the world's second largest economy, but might not overtake the United States until around 2030.
"These calculations are not just esoteric academic tweaks," Keidel wrote.
"Based on the old estimates, the US Government Accountability Office reported this year that China's economy in PPP terms would be larger than the US by as early as 2012. Such reports raise alarms in security circles about China's ability to build a defense establishment to challenge America's," he said.
Pravda.Ru has recently published an article “China may lead US economy to collapse dumping US dollar” (click here to read the full text of the article).
World central banks are in a hurry to get out of the U.S.
The nation that analysts are watching especially closely at this stage is China. Whether or not Beijing is selling its dollars can’t be officially confirmed until November, when the Treasury releases its tic data. However, top Beijing officials have been signaling for at least two years that dollar sales are increasingly imminent.
This past August, two Chinese government officials highlighted China’s massive U.S. dollar holdings (which include treasuries) and how it supports the value of the U.S. currency. They also noted that Beijing could use those holdings as a political weapon to counter congressional calls to revalue the yuan and impose trade sanctions on Chinese goods. Chinese state media referred to the country’s stockpile of U.S. dollars as its economic “nuclear option,” capable of destroying the dollar at will.
Beijing also clearly signaled that it would begin “diversifying” out of the dollar earlier this year when it announced plans to rebalance its $1.34 trillion currency reserves, which are mostly U.S. bonds. Already Beijing has created a $300 billion investment fund to use those dollars to purchase other assets in an attempt to increase its investment returns.
It should come as no shock, then, that China would now be selling its dollar holdings.