CHINA SPENDS MORE ON INFRASTRUCTURE each year than North America and Western Europe combined. That’s according to a new study published last week by global management consulting firm McKinsey & Company. The fact that China is investing so much in roads, rails, ports—and everything else that keeps society up and running—hints at big trends that could shape the global economy in the coming decades.
RCEP is a proposed free trade agreement (FTA) between the 10-member Association of South East Asian Nations (Asean) bloc and the six states with which they have existing FTAs - Australia, China, India, Japan, South Korea and New Zealand. Negotiations formally began in November 2012 at the Asean summit in Cambodia.
Initiated by ASEAN in response to the US-led Trans Pacific Partnership, it is, in part, designed to leverage more value out of the existing five ASEAN free trade agreements with other RCEP countries and the plethora of bilateral FTAs negotiated over the past 15 years among the RCEP countries themselves. But RCEP has the potential to be much more than simply another mega-regional free trade agreement.
While the Asian economies are already highly integrated, it is an interdependence which has grown under the current global trading regime, not through bilateral or regional trading arrangements. Staggeringly, ASEAN, Japan, China, Korea, India, Australia and New Zealand – which comprise the RCEP group – already had a bigger share of global GDP measured in real terms than the TPP countries in 2007. Bluntly put, the RCEP group is where the global economic dynamism is, and it is a massive opportunity for Australia and for the region.
by Joseph Stiglitz
When the history of 2014 is written, it will take note of a large fact that has received little attention: 2014 was the last year in which the United States could claim to be the world’s largest economic power. China enters 2015 in the top position, where it will likely remain for a very long time, if not forever. In doing so, it returns to the position it held through most of human history.
The International Monetary Fund (IMF) reports that China surpassed the United States as the world’s largest economy at purchasing power parity in 2014.
Sorry, America. China just overtook the US to become the world's largest economy, according to the International Monetary Fund.
Basically, the method used by the IMF adjusts for purchasing power parity, explained here.
The simple logic is that prices aren't the same in each country: A shirt will cost you less in Shanghai than in San Francisco, so it's not entirely reasonable to compare countries without taking this into account. Though a typical person in China earns a lot less than the typical person in the US, simply converting a Chinese salary into dollars underestimates how much purchasing power that individual, and therefore that country, might have. The Economist's Big Mac Index is a great example of these disparities.
So the IMF measures both GDP in market-exchange terms and in terms of purchasing power. On the purchasing-power basis, China is overtaking the US right about now and becoming the world's biggest economy.
We've just gone past that crossover on the chart below, according to the IMF. By the end of 2014, China will make up 16.48% of the world's purchasing-power adjusted GDP (or $17.632 trillion), and the US will make up just 16.28% (or $17.416 trillion):
I did not know what to expect, except for the promise of learning about the “rural development of China first hand.” From July 4-9, 2013, I was fortunate to have been part of the IPRCC sponsored trip in the rural part of China as a student representative of the School of Public Policy and Management of Tsinghua University.
Tucked in the hinterlands lies the province of Shanxi (Chinese: 山西; literally “West of the Mountains”), a less than an hour plane ride from Beijing, considered as part of the North China region. The main physical characteristic of Shanxi consists of a plateau bounded partly by mountain ranges.
What amazed me about Shanxi was its ability to exploit the natural resources that it has been endowed in a comprehensive manner for the benefit of its people. On one of the visits to Liulin County, an hour drive from the capital Taiyuan, the role of coal in the locality’s economy was undisputable as rows of giant factories line the highway. The coal extracted here is used to supply the energy needs not only of the town, but the whole country as well. Around the factories have sprouted residential and commercial areas, a typical picture of a boomtown. But more importantly, it was clear from this destination, the people of this area have been able to make the best of the natural resource endowments to serve not only its needs, but also contribute to the needs of the country. During the Q&A session, the townspeople highly acknowledged the positive role of the public and private cooperation that has led to the dramatic increase in the people’s livelihood.
This progressive town is not all about business, as the local government has established a community hospital, community social center, and an cooperative-government sponsored micro-financing enterprise that allows the townspeople to take out project-based loans for amounts ranging from 3000 to 6000 RMB.
The experience was further reinforced as the group traversed a range of mountains. An hour or so away traveling in the windy but smooth mountain roads, we expected to be brought to an idyllic nature spot. What we saw went beyond anyone’s wildest imagination.
In the barren lands between the giant mountains was a full-scale development headed by the company named LASAN. This company, which also operates the coal factories, has reinvested coal-profits to transform a barren plateau into a 10 billion yuan development project for a 158 square kilometer ecological agricultural park. In addition to the profit-motivation of the project, the social imperative is not lost, as the farmers who had contributed their land for the project compose 40% of the project’s equity. Upon being interviewed, the CEO, a native of the town, said that this colossal project is a chance to give back to the community that has been bountiful for persons like him. Though the successful completion of the project remains a couple of years ahead, such spirited approach to development surely provides for a solid foundation.
The development model above is applied in cash crops beyond potatoes such as mushrooms, jujube, walnuts, and the wine industry. Each industry or sector was carefully considered and incorporated into the natural environment. For example, the jujube, or more commonly known as dates, a common nibbled snacks for Chinese households, are grown in the hot and dry areas of Sanjiao Town because the plant revels in the summer sun and heat.
My appreciation for the trip and the lessons I would take home were made more colorful by my interaction with the other participants that came from eleven different countries including Ghana, Uganda, Kenya, Mauritius, Maldives, Mali, Malawi, Columbia, Pakistan, and Nepal.
One of the participants named Luis who came from Columbia and who is the director of a NGO that helps over 12,000 farmers in his hometown, was an ever-ready teacher on the technical farming processes that were presented during the trip.
Without the support of the China’s Ministry of Commerce, IPRCC, School of Public Policy and Management of Tsinghua University and the distinguished local organizers, a student like me would not have had the chance to experience a trip that has since given me a newfound understanding on what comprehensive development really means!
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