Before his visit to Washington this week, Chinese President Hu Jintao said: "We should abandon the zero-sum Cold War mentality and respect each other's choice of development path."
As America prepares for what the White House is calling the most important state visit in 30 years, Goldman Sachs Asset Management’s Chairman Jim O’Neill has thrown out a few facts on the Chinese economy that suggest the US has little option but to heed the Chinese President’s words.
With reports out of China indicating the world’s second largest economy grew by 10.1 percent in 2010, the Chinese economy is now worth $6 trillion a year and rising.
“There are a number of simple ways to think about the sheer magnitude of this rise of China. At around $6 trillion, China is now more than two times bigger than either France or the UK in dollar terms,” O'Neill wrote in his latest research.
O'Neill has been predicting the rise of the big emerging market economies, which he dubbed BRIC – Brazil, Russia, India and China.
“Back in 2001 when I dreamt up the BRIC acronym, China was less than $1.5 trillion, actually smaller than France or the UK. I have often been fond of saying to people, China has created the equivalent US dollar GDP of two new United Kingdoms in the past decade,” he wrote.
“At this base size, if China grows around 10 pct in US$ terms this year, China will create more than another Indonesia or Turkey. To translate this into our new terminology for what constitutes a 'Growth Market', China will be creating another Growth Market all by itself this year.”
Don’t Doubt the Growth
The skeptics on China point out that domestic demand is not matched by similar growth in consumer spending, but O’Neill dismisses this view.
“There remains a remarkably large number of people out there that are either unaware, don’t believe, or think that the story of the Chinese consumer is unsustainable” says O’Neill.
Many of the skeptics cite reported gross domestic product data, which shows personal consumption at 35 percent of GDP, but this translates into $2.1 trillion, he pointed out.
"Back in 2001, assuming the same 35 percent, the consumer would be around $490 billion. Therefore, over the past decade, the Chinese consumer’s US dollar value has risen by around $1.6 trillion,” he wrote.
“This, and remember, I am assuming the base numbers of the pessimists, is about 15 percent of the current level of US consumption. It is also about the size of the overall Indian economy today,” O’Neill added.
China reported a trade surplus of $184 billion for last year, making up 3.8 percent of GDP, compared to around 11 percent three years ago, he said, adding that in 2010, China's total imports were $1.36 trillion, an increase of $389 billion over the previous year.
"In one year, China imported more than the total value of South Africa, or about a quarter the US dollar value of India. Who says China grows at other’s expense?”