In the last piece we learned that China has a GDP per capita of around $4,750 (at least it did in 2010), today I’d like to look at growth rates in terms of that number.
There’s another big headline to go with this figure though the number isn’t quite as big, it’s “China’s economy grows at 8-9% year on year!” and we’re told that this figure is amazing compared to our own economic growth rates which, financial crises aside, tend to be around 2-3%.
But what do these numbers really mean for the people who live in our countries? Let’s start with the poorest country in the world – which according to the three estimators we looked at yesterday (the IMF, CIA Factbook and the World Bank) is probably Burundi in Africa (actually there are other countries which might be poorer but Burundi is the poorest nation to make all three lists – in the case of the other nations they were excluded from one or more list because there was too little data to draw a conclusion on). Burundi has a GDP per capita of $200. That’s not a typo – there’s no missing zeros, it’s $200.
If Burundi were to receive an economic stimulus of epic proportions and its economy were to double in one year – that’s 100% growth rate. That number would increase to $400. That extra $200 per person a year would certainly have a dramatic effect on the lives of the people of Burundi (assuming it didn’t all end up in the hands of an offshore bank account for the country’s leaders but was shared relatively equitably amongst the population). But in global terms, Burundi would still be poor – in fact it would only move 4 or 5 places up the table and be marginally richer than Ethiopia but still poorer than Eritrea.
The number you would see in the press however is 100% growth rate, probably followed by an alarming set of exclamation marks, then there would be talk of billions flowing into Burundi and no doubt a whole host of happy English teachers on the next flight to Bujumbura to cash in on this “boom”.
It’s with this in mind that we explore China’s growth rate, 8-9% sounds impressive when compared to our own measly growth rate, so let’s put a dollar figure on that. 8.5% of $4,750 is $403! In fact China’s 8.5% growth is worth twice as much as 100% growth in Burundi, which is pretty impressive though not for the people of Burundi. That’s $403 more per person for China to spend on health care, roads, education, etc. and not to mention to put towards wages to boost living standards in general.
Now let’s compare that to the United States which has $48,150 per person to go round to start with, a 2% growth rate for that number yields an impressive $963! That’s right 2% growth in the US economy gives you more than twice as much as that 8.5% growth in the Chinese economy.
In fact if the United States economy stayed at zero growth and China could sustain this level of growth indefinitely (and it can’t and we’ll look at that another day) it would take China, 31 years to catch up to the GDP per capita of the United States.
Even in this fantasy situation it does not mean that China would be equally developed as the United States in 31 years’ time – because during most of that time the Americans would be spending far more per person per year than the Chinese on developing their nation, because they’d have more money until the Chinese caught up.
Yes, it’s true that if you use the big number China will almost certainly “overtake” the US in the next few years, but that small and more useful number shows that in reality it’s going to take a lot more time – even in perfect conditions, which won’t happen, for over 30 years.
The $5,000 is also an important number to our deluded English teachers who think they’re going to be millionaires overnight, because it shows that while there may be “lots” of money in China – on a per person basis there isn’t all that much to be had. And as we’ll find out in another installment of this theme, at this moment in time Chinese people, through necessity, want to keep hold of their money rather than spend it.