China Grows to World's Third-Largest Economy

BEIJING, Jan. 14 -- China leapfrogged over Germany to become the world's third-largest economy in 2007, sooner than predicted, underscoring how quickly the concentration of global economic power has shifted.

Although earlier estimates had put growth of China's gross domestic product that year at 11.9 percent, revised figures released Wednesday by the government statistics bureau show that its economy actually expanded by 13 percent to $3.38 trillion. That compares with Germany's 2007 GDP of $3.32 trillion.

"It was inevitable," said Ting Lu, a Merrill Lynch economist based in Hong Kong.

Whether the growth trajectory will continue, however, has been complicated by the global recession, which has already prompted massive layoffs and waves of company closures, especially across southeastern China, the heartland of its export-driven economy. If China were to continue to grow at its current rate, economists say it could surpass Japan in as soon as three years and the United States in 18 years to become the world's No. 1 economy.

In 2007, the United States remained the world's largest economy with a GDP of $13.8 trillion and Japan the second-largest with a $4.38 trillion GDP, according to calculations based on an annual average of daily exchange rates by Merrill Lynch.

China is one of the few major economies that is on track to have positive GDP growth this year. Merrill Lynch, for example, calculates that China will have a GDP growth of 8 percent as compared with declines of 2.8 percent for the United States, 1.3 percent for Japan and 0.6 percent for the European Union.

"In 2007, the gap between the growth rates of China and other big countries was huge. Actually in 2009 the gap between will be even bigger," Merrill Lynch's Lu said.

But even if China achieves a projected 8 percent rate of growth this year, that might be insufficient to stop the wave of company bankruptcies and layoffs that have alarmed China's leaders. Economic data released earlier this week only added to the pessimism: Exports dropped 2.8 percent in December from the same month a year ago, the sharpest decline in a decade.

In the early days of the global economic crisis, some economists had debated whether China would serve as an engine that would keep Asia from being pulled into the turmoil affecting other parts of the world. Pakistan, which was suffering from a balance of payments crisis, even came to China looking for a loan. But this fall China found its own economy cooling so fast that its leaders issued statements saying that the best thing it could do to help the world economy was to help itself.

Coming into this global slowdown, 30 years of capitalist-style reforms pioneered by Deng Xiaoping had transformed China from an isolated and impoverished nation into one of the world's great economic powers.

Years of white-hot, double-digit growth driven by exports and investment went hand in hand with achievements in politics, science and engineering and the arts.

Huang Yiping, chief Asia economist for Citigroup, said that China grew so quickly because it had the "advantage of backwardness."

"As China used to be a very backward country, there was huge potential for the economic and technological development," Huang said.

China has trumpeted its achievements in the past few years especially: It hosted the Olympics and pulled off its first spacewalk, and native sons and daughters such as Jet Li and Zhang Ziyi became Hollywood darlings. Its engineers have built the world's the largest building (the new Beijing airport), the longest trans-oceanic bridge (connecting Shanghai to Hangzhou), longest plateau railway (to Tibet), the fastest train (Shanghai's "maglev") and the largest dam (Three Gorges).

China has been using its increasing wealth to buy political clout by investing in underdeveloped parts of Asia, Latin America and Africa. It is gaining influence in global economic institutions such as the Group of Eight and the International Monetary Fund, which have long been dominated by Western powers. It is now the biggest holder of U.S. Treasury securities.

Economists said that despite all the wealth implied by such a large GDP, China should still be considered a poor country.

Yi Xianrong, a researcher at the Chinese Academy of Social Sciences, a government-affiliated think tank, emphasized that widespread unemployment and rural poverty are still major problems. China's 1.3 billion residents have a per capita GDP of about $2,500 while Germany's 82 million inhabitants have a per capita GDP of $40,400.

"If we look at the per capita figures we still have a long way to go," Yi said.

(Washington Post)

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