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China: Waking The Sleeping Giant

China has passed Japan for the first time ever in terms of GDP, a landmark event for their economy. Where do they go from here?

China and its economy under the microscope

The United States’ Gross Domestic Product, or GDP, is still larger than China’s. But according to economic analysts, that might not be the case much longer.

China, thanks in part to its large population, has been steadily growing its GDP in the last few years. Some economists say it will only be 10 years before the country surpasses the U.S.’ GDP.

China, of course, made big news when its GDP did rise above Japan’s in the second quarter of 2010. This marked the first time that China’s GDP ever rose past Japan’s.

The move happened fairly suddenly, too. In the first quarter of 2010, China had a GDP of $1.196 trillion, while Japan’s GDP stood at $1.299 trillion. In the second quarter of 2010, China’s GDP had risen to $1.337 trillion while Japan’s had fallen to $1.288 trillion.

China’s move past Japan, though, is hardly the first time it’s made headlines for passing up a major country. In the last 30 years, the country’s GDP has risen exponentially. Along the way, China’s GDP has surpassed that of many other powerful nations.

In 1989, for instance, China’s GDP rocketed past India’s. In 1993, it soared past Russia’s. One year later, China’s GDP rose past that of Spain’s and in 1995, Canada. China didn’t stop there. In 1996, its GDP rose higher than Brazil’s, while in 2000 it surpassed Italy’s. In 2005, the country’s GDP grew larger than the GDP of France. In 2006, it rose past UK’s GDP before surpassing Germany’s in 2007.

There are several reasons behind China’s steady growth in its GDP. The country, for example, has moved toward privatization, encouraging citizens in its rural areas to form private businesses. China’s government offers these budding entrepreneurs financial incentives to turn a profit.

Foreign investment has played a large role, too. The Chinese government has welcomed outside countries that want to invest in the country’s domestic assets such as factories, machinery and communication systems.

The country’s booming population has helped, too. It’s supplied Chinese businesses with an ever-present and inexpensive labor pool.

Finally, high productivity has worked in China’s favor, too. The country’s low-value currency has made China’s exports cheap for consumption by developed nations.

For these reasons, many economic experts expect China’s GDP to soon pass the GDP of the United States, the largest in the world. Analysts from Price Waterhouse Cooper expect this to happen as soon as 2020, while those from Goldman Sachs are predicting that this historic event will take place in 2027. Economists with the Albert Keidel Report say that China’s GDP will rise above the United States’ in 2035.

Of course, neither China nor the United States boasts the highest GDP per capita. That honor goes to Luxembourg. This is a tiny country, though. It’s not surprising, then, that its GDP per capita stands at $83,978.

In second place in this category is the United Arab Emirates, with a per capita GDP of $57,821. Norway, with a per capita GDP of $55,672 comes in third, while Singapore, with a per capita GDP of $50,701, ranks fourth. Filling out the top five is Brunei Darussalam, with a GDP per capita of $48,995.

Other countries with top per capita GDPs are the United States, sixth with $46,436; Kuwait, $46,079; Switzerland, $44,717; Iceland, $41,282; and Netherlands, $40,715.

Achieving a high GDP isn’t all positive. In fact, the feat does come with some negatives. In China’s case, this includes a population that continues to climb. By 2025, China is expected to boast 221 cities with populations topping 1 million. Many critics wonder how sustainable this is.

In part because of this surging population growth, China faces an ever-growing income disparity. Hundreds of millions of the country’s 1.3 billion residents are impoverished.

China also has a dismal environmental record. The country ranks as the largest emitter of greenhouse gasses.

Having China be such a major financial player might not also be the best result for the rest of the globe. Already, China produces four-fifths of the world’s toys and three-fifths of its clothing. This means that China has large trade deficits with more developed countries.

Regardless of whether China’s surge in GDP is good or bad, one fact can’t be argued: China’s growth doesn’t appear to be slowing any time soon.

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