By JFK Miller
You may have heard by now the news that the latest World Bank estimates have China’s economy as being about 40 percent smaller than previous WB estimates, ie., a mere US$6 trillion rather than US$10 trillion. So why is this important? Well, it probably won’t mean a great deal to the average Chinese, even the extra 200 million who, because of the new figures, are now technically living below the poverty line of US$1 a day. The NYT estimates the number of people in China on skid row has risen from 100 million to 300 million.
But the figures do carry important implications, not the least of which is something which affects all of us working in China — the value of the renminbi. The International Herald Tribune‘s Keith Bradsher says the new figures take the pressure off Beijing to revalue the yuan. Even hardline advocates of yuan appreciation, such as Harvard Professor Jeffrey Frankel, seem to be backing down. Frankel admitted to the Trib that the new figures badly undermine his argument for the renminbi to be revalued. “I would have to retract that based on these latest numbers,” he’s quoted as saying.
Meanwhile, the Financial Times‘ Albert Keidel says the revised estimate indicates that China just won’t have the dough anytime soon to build a defense capability to rival America’s. He also says a “smaller, poorer” China strengthens Beijing’s case for continued funding by the World Bank.
But it seems Beijing can’t have it both ways. The Times of India‘s Chidanand Rajghatta points out that Beijing has argued on the strength of the old figures for increased voting clout at the World Bank and the International Monetary Fund. So the revised figures (which say China is poorer) are a setback for more voting muscle.
Beijing hasn’t officially commented on the World Bank’s new estimate and isn’t likely to. In any event, taking a position is a double-edged sword. If Beijing were to embrace the new estimate and cry poor, then it undermines its own argument for more clout at the WB/IMF. If, on the other hand, it dismisses the figures, it negates its own case for keeping the yuan as it is.
The story seems to have had a trickle down effect in the international press. The FT picked it up as early as November 13 (with an editorial on December 18), the NYT on December 9 (and again by Keith Bradsher in the Times’-owned Trib on December 20, and by Howard French also in the Trib on December 21), The Times of India on December 19, and the Los Angeles Times on December 30. The FT went with the witty headline “From riches to rags” while the LA Times gave us the groan-inducing “The great fall of China”.