Yesterday, we posted on the news that China had surpassed Japan in total gross domestic product (GDP) for the second quarter. GDP is the most commonly-used means of measuring national economic output. There are other ways of measuring economic output and one of those is to measure GDP per capita or per person in a given country. By that standard, China is a long way down the list, but more on that in a moment. Even the U.S. is far from #1. No really. From Carpe Diem, here is the news on per capita GDP [emphasis in the original]:
…Adjusting for GDP (Purchasing Power Parity) on a per-capita basis, China (at $6,567) has a long way to go before it achieves “superpower” status, considering that it ranks #102 according to the CIA, #99 according to the IMF, and #92 according to the World Bank. In fact, on a per-capita basis in 2009, China ranked behind Namibia, Jamaica, Belize, Thailand, El Salvador, and Albania. And the last time the U.S. had per-capita GDP of $6,567 was back in 1932…
Purchasing power parity: what the heck is that?
Purchasing power parity (PPP) attempts to compare economies that have very different price levels for basic goods and services. The most famous example of using PPP is the Big Mac Index which is described by the Economist this way emphasis added]:
…[the Big Mac Index] is based on one of the oldest concepts in international economics, purchasing power parity (PPP), the notion that a dollar, say, should buy the same amount in all countries. In the long run, argue ppp fans, currencies should move towards the exchange rate, which equalises the prices of an identical basket of goods and services in each country. In this case, the basket is a McDonalds' Big Mac, which is produced in more than 100 countries. The Big Mac PPP is the exchange rate that would leave hamburgers costing the same in the United States as elsewhere…
Put another way, PPP tries to look at economic output across countries by leveling the playing field in terms of a broad basket of goods and services. In China personal incomes are lower than in Japan, but the cost of rent or food may also be lower so, using PPP, you can more easily compare the two countries.
Here are the top 10 countries for GDP per capita:
Source: Wikipedia / CIA World Factbook
The full IMF, World Bank and CIA lists on national GDP per capita can be seen here.
As you can see, the U.S. is #8 on this list. The others tend to be very small, affluent countries many of which are financial centers. The most interesting of these is, of course, Hong Kong, which is tied at #9 with a per capita GDP of $42,700 compared to $6,600 for China.
Here is the section from the same chart shown above that shows China’s GDP per person:
Source: Wikipedia / CIA World Factbook
China is in interesting company, along with such economic powerhouses as Turkmenistan and Namibia.
Here is yesterday’s post that provides a bit of a counterpoint to this one. Despite abysmally low per capital economic output, in the aggregate China is big. How big you ask?
In the second quarter, China apparently surpassed Japan as the #2 economic power in the world. I say apparently because some folks might have forgotten that China is a totalitarian country and we do not have the same access to information over there as we do here or in Japan.
In other words, I believe that government statistics from a despotic country need to be taken with a grain of salt or two. In any case, this chart from Economic illustrates nicely what you may seen in the media over the next few days. China has surpassed Japan as the #2 economic nation:
Source: Econompic
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YES. DESPITE MILLIONS STARVING CHINA STILL HAS MONEY TO BUILD NUCLEAR BOMBS, MISSILES, SUBMARINE, ETC…
What’s your point, Kurt Brouwer? I don’t see China trumping up the fact that they are number 2. In fact, they have repeated said that their per-capita income is low and that the world should see them as a developing country. It is the Western media that has bad a big story out of this.
On your point about government statistics, it has been acknowledged that by the IMF that their statistics are accurate enough even if they may not be as advanced as those in the US. Clearly, it is you who is not to be trusted as you use the “highly reliable” Wikipedia as your main source.
Min Gao, obviously you know nothing about China. I am willing to bet you are not Chinese as you claim. China spends a very meager amount on its military. Despite having 2.5$ trillion in reserves, its spending as a % of GDP is among the lowest in Asia. Why should it spend on military when its resources could be better utilized in educating and uplifting its rural population.
I would invite all three of the previous commentators to again look at the exchange between Kurt and me on yesterday’s post.
Separately, to Min Gao, I would offer this: Aren’t we Americans also spending billions on two wars, while our infrastructure is crumbling, and our national debt is skyrocketing?
All that Kurt and I were saying is that China is BIG, and getting BIGGER (as an economic power) with each passing day. This was hardly the case after World War II ended.
Granted, as Kurt says, China’s data may not be entirely accurate. But, if one walks through a US department store, it’s obvious consumer goods are certainly being manufactured in large quantities.
My. We seem to have hit a hot button or two.
To: What’s Your Point — One quick correction. Actually, the sources of the data cited are the International Monetary Fund, The World Bank and the CIA. Wikipedia just put all the information in one place. I don’t remember saying China made a big deal out of its #2 status. I agree that it was the Western media that did.
Again, it is ironic that you — commenting anonymously — are criticizing a post that suggests that China is a totalitarian state. Free yourself. Use your name. It’s OK here, just not over there.
Touche’, Kurt !
Kurt Brouwer is a fee-only financial advisor with three decades of experience. He is the chairman and co-founder of Brouwer & Janachowski, LLC. Kurt has written books, articles and hundreds of blog posts on mutual funds, ETFs and other investment topics. E-mail: kurt.brouwer *at* gmail.com.
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