Another Milestone for the Chinese Economy

Our coffee doesn’t taste any different this morning. The sun still appeared on the horizon in the East. But today the world is different. Bean counters who care about these things say China has become the world’s second largest economy, effective: immediately.

If numbers from the Far East can be trusted, China produced $1.3 trillion of economic activity in the second quarter. Japan, the erstwhile #2 economy on the planet, produced a mere $1.2 trillion.

Moreover, at the current trajectory, China’s economy will be larger than the United States’ by roughly 2030. Yawn. Stretch.

Two nuggets from today’s report from the Japanese Cabinet Office glimmer in our suspicious eyes.

(1) The Chinese economy has grown 9,000% since Deng Xiaoping took over in 1978 and told his people “to be rich is glorious.” 9,000%!

With this statistic in mind, we’d like to note how many very smart people were making similar projections for Japan to eclipse the U.S. back in 1980. We won’t pretend to know exactly how much growth is “too much, too fast,” but 90-fold in 30 years seems like it might make the cut.

(2) At the same time, the latest Chinese per capita income numbers have the average citizen making just $3,600 a year. That puts this booming, economic monolith in the same class as Algeria and El Salvador. America’s $46,000 seems a lot more than 20 years of growth away.

Still, stranger things have happened.

We’ve looked at this chart before. But the trends still appear to hold. If China only grows to consume half as much oil as the U.S. — that is to say, if the average Chinese person becomes only half the consumer of the average American — the impact on oil prices will be enormous. And is it really that impossible to think that one day they’ll use more oil than us? What’s a barrel worth then, when 1.3 billion Chinese want SUVs and flat screens? $1,000?

Addison Wiggin
for The Daily Reckoning

The Daily Reckoning