Douwe Osinga's Blog: China and Job Creation

Sunday, December 7, 2003

Populist in the US complain about the growing importance of China. A giant sucking sound of jobs appearing overseas, unfair trade policies, it sounds a lot like a cheap rerun of the eighties, with the bad guys replaced by other yellow people. But China is coming of age rapidly and not just an exporter of cheap stuff. Indeed, China has been the most powerfull growth engine of the World Economy for the last couple of years.

Yes, you've heard it is the good old U.S. of A. Two third of the growth of the World Economy supposedly took place in America during the nineties. But that was measured in dollar terms. If you would measure growth in dollar terms over the last two years, then the European Union is the king. Indeed, over the last two years the EU overtook the US as largest economy in dollars, just because the Euro rose about 40% in value in the same period.

If you measure economies in a currency neutral way called purchase power parity or PPP, China was a bigger contributor economical growth than the US and more importantly, over the last two years, the place to where exports from the EU and Japan grew the most. Given the fact that the dollar looks distinctly wonly while Yuan seems to be undervalued, China is probably a much better bet for exporters than the US too.

It is not so suprising. China was always bound to overtake the US economically, just because it is so much bigger. The surprise is in the fact that the absolute growth of importants into China overtook the growth of importants in the US a long time before these economies became comparible in size.