Poor China

Literally.

The Financial Times had this yesterday:

In a little-noticed mid-summer announcement, the Asian Development Bank presented official survey results indicating China's economy is smaller and poorer than established estimates say... when the World Bank announces its expected PPP data revisions (Purchasing Power Parity, a means to compare Gross National Products based off of cost-of-living factors and exchange rates) later this year, China's economy will turn out to be 40 per cent smaller than previously stated.

The number of people in China living below the World Bank's dollar-a-day poverty line is 300m - three times larger than currently estimated. The ADB's announcement also indicates that the number of dollar-a-day poor in India is closer to 800m than the current estimate of 400m.

That's a rather large change(!); the result of little change in the summary data since the late 1980's.

You may have read China is the world's second largest economy and will surpass the US (at current growth rate) in 20xx. Surprisingly, even with a 40% reduction, China would still be second by the GDP PPP standard, but it would be much closer to Japan and India (3 & 4) than the US (1). Per capita ranking would fall from ranking in the 80s to the 110s.

But those are just statistics.

What the reduction of real wealth means is a change the tenor of Chinese international relations. The view of China as a military threat is likely reduced (fewer resources), but that might galvanize Taiwan in its desire for independence. That effectively raises the specter of engagement. The reduced wealth also means a more limited ability for China to respond to other issues, such as their growing environmental concerns.

It's possible this isn't as big of a deal as I think, as it doesn't change their growth trajectory--it just changes where they are at at the moment. It does mean, however, China has to sustain the double digit growth it has experienced for most of the the last 2-3 decades for an even longer period of time to become "competitive" with the US. This presents its own issues of a greater wealth disparity, an overheated economy, inflation, etc.

I found this through Marginal Revolution which often has a fairly educated discussion on topics. Check in if you want more insight than I can provide...