Organization: Penn State University
Date: Sun, 13 Sep 1992 22:22:07 EDT
From: <ZQH@psuvm.psu.edu>
Newsgroups: soc.culture.taiwan,soc.culture.hongkong
Subject: Re: Is Mainland China #3 Economic Power?

From: lai@Apple.COM (Ed Lai)
>If you believe that China has a GNP that is 66% higher than Japan, then indeed
>you will believe you can buy the Brooklyn bridge.
>

We were talking about GNP of whole countries, not GNP per capita!
Remember, Japan's population is 124 million, while Mainland China
has a population of about 1.16 billion --- 9.35 times of Japan's.
Even the GNP by purchasing power for Japan could be a little bit
inflated, considering Japan has to import energy, raw materials
and half-finished products for its production.  What's the percentage
of those items in the values of final products???

Even for GNP per capita, Mainland China is catching up quickly.
Someone may say the whole thing is due to the booming export.
Well, it might be true for Canton (which counts for less than 10%
of Mainland's GNP), how about other places?  Canton has a growth
rate of 25%(!), but whole Mainland's growth rate is 12%, is this
all because of the booming export?  Just look at Shanghai (which
was the most prosperous metropolitan city in Asia before 1949),
its growth rate is 21%, but the export counts less than 15% of
production (from the People's Daily), and only until recently,
it started opening up special zones for foreign investments.

I think the booming economy of Mainland is mainly because the
government now allows people to do business and get rich, and
the `iron rice bowl' (life-time employment no matter how lazy
and incompetent you are) is kind of cracked somehow (through
not completely smashed yet) so workers started to really work
(even may not work really hard), plus the partial abolishment
of planned Stalinist economy with the replacement of free-market
capitalist economy (OK, `socialism with Chinese characts' ;-) ).
All of these results a booming domestic consumer market, which
fuels the fast growth of economy.

(Money is not the end but the mean for an economy.  For example,
 clothmakers sell their products to retailers for money which
 will be used to buy TVs --- some of this money gets into the
 hands of TV makers who would use it to decorate their apartments
 --- then the decorators use the money to buy clothes.  Now, the
 dollar/yuan clothmakers borrowed from bank to start their business
 has created several times more jobs than clothmakers themselves.
 This clearly illustrated why Mainland can be developed very rapidly
 --- because it has the biggest underdeveloped/unsaturated demostic
 consumer market.  As long as the government lets people do business
 and have a free-market economy, and workers start to work hard,
 wealth will be created very rapidly out of Mainland's own demostic
 market.  For a long time, Mainland Chinese didn't have a government
 which allows people to seek their opportunities.  Given the freedom,
 Chinese are well-known for from-rags-to-rich.  Just look at those
 oversea Chinese, for example, those in the Southeast Asia, they are
 controlling their host countries' commerces).

>As the country become more industrialized and need to import
>industrial equipment and parts, GNP by exchange rate become more and more
>meaningful.
>

Yes, this could be true, but with three conditions:  1). transportation
costs between trading countries are zero;  2). there are absolutely
NO trade barriers at all (such as tariff/import tax, export subsidies);
3). exchange rates are relatively fixed  --- but none of these conditions
exists!

Just recently, German Marks raises it value by more than 20% against
U.S. Dollars --- this means that, suddenly, Germany's GNP increases
by 20% (if U.S. Dollars is the standard), or U.S.' GNP decreases
by 20% (if German Marks is the standard).  Does this make any sense???

Yes, a country with higher-valued currency has advantages in import
and its people feel richer oversea --- but its export will be hurted
in long term, when competing with others, if it doesn't have a really
loyal customer base and/or monoply of certain products/technologies.

I think your concerns about real production costs must have been
taken into account by people in IMF (International Monetary Fund).
That might be why it takes them two years to figure out GNP by
purchase power for countries (e.g., 1988's GNP by purchasing power
was not available until 1991).  They must have collected a lot of
information from official and unofficial sources.

>>following is from the `Fortune' magazine (page 128-129, October 7,
>>1991):
>>
>>  | 1988 |         GNP per capita       GNP             GNP
>>  |Figure|      (by purchasing power)           (by purchasing power)
>>
>>  Mainland           US$ 2,472      [US$ 363.8B]     US$2,803.2B
>>   Taiwan            US$ 6,528      [US$ 161.7B]     US$  131.9B
>>  HongKong           US$14,014      [US$  70.1B]     US$   81.3B
>>  Singapore          US$10,417      [US$  35.2B]     US$   28.1B
>>
>>   Japan             US$13,645      [US$2961.0B]     US$1,685.2B
>>  S. Korea           US$ 5,682      [US$ 238.0B]     US$  243.2B
>>

You can see from the table above that most countries have a very
close GNP by purchasing power to its GNP by exchange rates, except
Japan (which is well-known for its practice of protecting its own
demostic market and very high prices/cost-of-living --- Japanese
makes more money than Americans, but living standard is much lower
than American) and Mainland China (which had been isolated from
the world economy for more than 30 years and have very heavy
government price subsidies/controls with artificially and
ridiculously low prices for its industrial products).
I think GNP by exchange rates is based on each countries'
domestic prices and then converted to U.S. dollars.