Agence France Presse covers a recent report by Albert Keidel, a senior associate at the Carnegie Endowment for International Peace and a former US Treasury official for the Office of East Asian Nations and World Bank economist in Beijing. He believes China's economy could be overvalued by as much as 40%, citing data from the Asian Development Bank and guidelines from the World Bank.
Keidel's analysis is based on purchasing power parity (PPP), which strips out the impact of exchange rates. There are a few quick consequences and implications that drop out of this, if true:
- The number of people living in poverty in China is about 300 million, not 100 million
- China wouldn't overtake the world as the largest economy until 2030, even if its present growth path continued - which is itself unlikely, given no rule of law and the other handicaps discussed in our multi-variable look in "China's Stresses, Goals, Military Buildups... and Futures."
- There are some implications re: China's ability to devote defense dollars, though as a dictatorship thay can do it on the backs of their elderly and poor, as they're doing now.
- Keidel: "For example, risks to its impoverished rural hinterland from a sudden large revaluation of its currency loom larger in Beijing's eyes than in Washington's."
- One implication Keidel says does NOT drop out is any useful information re: currency over/under valuations.
The World Bank's lead economist for China, Bert Hofman, disagrees. He thinks it's too early to use the PPP as a basis to revise the size of China's economy, because the tools are still at only a research stage.
Still, call it one more useful maybe to plug into "China's Stresses, Goals, Military Buildups... and Futures."