The big number from yesterday is China’s Gross Domestic Product (GDP), which is the value of all the goods and services the country produced in a year (2010 in my example). And as we discovered it’s not a very useful number because we can’t relate to it.
How much money? Do you know how many lead painted toy cars I could buy with that? Me neither but I bet it's a lot!
There’s a much smaller number that’s of far more use when it comes to understanding economies in general, and we get that number by dividing the big number by the number of people who live in the country to get what’s known as the GDP per capita.
Why’s that number more useful? Because it gives an indication of how much money (on average) per person that can be used to pay that person, and be spent on raw materials for their work and for all other “stuff” that goes on within the country – like hospitals, schooling, infrastructure, etc. the list is pretty much endless.
It’s only an indication because some countries spend more than they earn, for example the United States and the United Kingdom and that’s where a “budget deficit” comes from. Others spend less and have a “budget surplus” though that’s not as common as running a deficit particularly in Western countries.
So what’s China’s GDP per capita? Well that’s complicated because we don’t know exactly how many people live in China, and there are different estimates on how much money is in their GDP too. Best guesses put the population at around 1.3 billion (another big number, you’d certainly need a rather enormous beach to invite them to a BBQ) and the guesses which are most credible come from the IMF (The International Monetary Fund), the World Bank and the CIA Factbook, and in 2010 each of them came up with a different number for GDP per capita.
It is possible to carry China's GDP per capita around as a single bank note - as long as you have one of these babies which were made in 1934.
The IMF went with a figure of $5,184, the World Bank said $4,428 and the CIA said it was probably $4,400. Given that range I’m going to take $4,750 when I talk about GDP per capita in China from now on in.
I think we can probably all agree on one thing, $4,750 isn’t a lot of money – it may represent a significant sum in terms of our own lives but I’d guess that for some of my readers it’s less than one months’ wages. For the vast majority of the rest I would think it represents somewhere between 2 and 4 months cash at the most.
So the amount that China had in 2010 on average to pay someone’s wages, provide any social benefits, investing in schooling on behalf of their children, build roads and rail networks, develop hospitals and train people to work in them and so on… was probably less than $5,000.
In those circumstances $5,000 doesn’t go very far, in fact it’s useful to compare this number to some other countries so you can get a feel for where it fits in the “global” picture.
Countries with higher GDP per capita at the lower end of the scale include Azerbaijan (around $7,500) and Botswana (around $8,900) and as we head up the scale we find South Korea (around $27,500), the United Kingdom ($39, 600), the United States ($48,150) and right at the top we find Qatar ($98,000) and Luxembourg ($122,147).
In fact in real terms China was ranked (depending on which of the three estimates you take) as between the 90th and 99th richest (per person) country on earth in 2010. That’s nowhere near as scary is it?
Luxembourg's a beautiful place, and has only 500,000 citizens but they've got a lot of money floating around to enjoy it with.
You can see that for Chinese people to share the same quality of life as we have in the UK or in the US their economy needs to be between 8 and 10 times larger than it was in 2010.
Tomorrow I’m going to look at this small number and use it to explain some bigger (and smaller) numbers that are also used to put the frighteners on in the West.