The Sources and Sustainability of China’s Economic Growth

IN 1978, AT THE outset of its economic reform, China was the world’s tenth-largest economy, with a GDP of about $150 billion, or less than 6 percent of U.S. GDP at the time. By 2005, however, China’s economy, at $2.2 trillion, had grown to become the fourth largest in the world, behind only the United States at $12.5 trillion, Japan at $4.5 trillion, and Germany at $2.8 trillion. The above figures, which come from the World Bank, evaluate GDP at current exchange rates and do not take account of differences in the pur-chasing power of currencies. When measured instead at purchasing power parity (PPP), China is already the world’s second-largest economy, with almost $9 trillion in output, nearly three quarters that of the United States. It has been suggested that, at current growth rates, China’s GDP stated in PPP terms could exceed that of the United States as early as 2010.1 When China’s GDP converted at current exchange rates does match that of the United States, assuming that China’s population remains four times the U.S. population, Chinese income per capita will then be but one quar-ter that of the United States. By comparison, the purchasing power of the average Chinese resident will substantially exceed one quarter that of the average U.S. resident, perhaps rising to the vicinity of one half.