Posts Tagged ‘three Ps’

It was Goldman Sach’s paper “Dreaming With BRICs” predicted that China’s gross domestic product would overtake the U.S.’s sometime in the 2020s. Now the World Bank study in April,2014 said this for certain by end of this year. Such predictions however coming from knowledgable circles ought to be taken with a pinch of salt.
Take the magic Three P’s: Purchase Power Parity
This yardstick takes into account that a dollar buys a lot more in Beijing than in Bethesda, Maryland. According to the Big Mac index for instance, the McDonald’s hamburger costs 40 percent more stateside than in the Middle Kingdom. Labor is cheap in China. Hire and Fire in Beijing under one party rule is same as in America but no American labor will waste on such low pay. Or take a haircut in Palo Alto, California, sets you back $25; the average in Shanghai is five bucks. An American customer may want to have a crewcut with some graffiti thrown in. Or a pancake style. Whereas in Hunan it may be a peasant hair cut would only need a rice-bowl to keep the line and anyone with a pair of scissors snip away the superflous hair and call himself a barber.
So the three P’s don’t reflect real power.
One dollar is a giant in comparison with yuan. When China imports technology from the U.S. or high-tech weaponry from Israel, it has to pay in dollars. Ditto when it gobbles up African mines or buys the loyalty of developing countries with foreign aid. Tuition for Chinese students at Stanford University is also billed in dollars. What little we do not see between the lines is dollar’s clout as International currency has a drawback when US batch of peanut butter sold through retail throws a scare of botulism at home. Compensation is paid in dollars not to mention the killing legal costs. In China melamine laced milk products are paid in yuan and at the worst is the fellows responsible for negligence are shot to appease the irate public.
As early as 1984, China’s growth peaked at 15 percent. Now, the rate is down to one-half that. The sluggish world economy plays a part, but the underlying reasons are structural. There is housing market bubble in the big cities in China. It will break just as it did in the USA in 2008. When it happens all those villagers who were thrown out of their ancestral homes and those who have been made paupers in land speculation can put themselves into the labor pool. Ample low-wage labor will not cut any ice by shipping them to Europe or the US. They have their own unemployment to grapple with.
Spectacular growth is always easy when on paper. It was thus credit agencies gave Greece Cyprus, Iceland such high reports. China has her own problems and growing threats from ethnic minorities and any race for a global economic power do not carry prosperity with it.(ack: Josef Joffe/bloomberg.net)


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