Great post. However, you have made a few mistakes. Your calculation of China’s PPP GDP used $10.17 trillion as a starting point. However, that is already a PPP adjusted value. See the CIA World Factbook for the original data. At market exchange rates China’s GDP is $2.518 trillion. Using your adjustment factor of .481, that gives a GDP for China of $1.21 trillion. This is actually considerably too low compared to the United States.

Earlier I posted the CIA PPP GDP statistics for both China and the United States. China is around 77% of the US which makes overall sense comparing the two countries.

Your reference to the steel industry is interesting. I haven’t seen recent steel production numbers for China, but I will take it as a given that China is producing 5 times as much as the United States. I would also assume that the product mix is close enough to assume parity in value per ton.

Specialty steel (stainless and other) is too small to make much of a difference in either country. See “http://findarticles.com/p/articles/mi_m3MKT/is_7-4_113/ai_n12414392″ (http://findarticles.com/p/articles/mi_m3MKT/is_7-4_113/ai_n12414392) for some specialty steel import and consumption numbers.

Beyond that the technology of modern steel production is quite well standardized. The combination of blast furnaces, basic oxygen, and continuous casting produces an equally high quality product everywhere in the world.

However, in one respect the US steel industry does (probably) yield a greater value added per ton. The US produces most of its own coking coal and iron ore. China imports a greater fraction of its raw materials (I believe). This would tend to yield more incremental value per ton in the US versus China.

“(measured by exports)” – if we are in a bubble economy, much rests on adjusted production, energy (various sources) and shipping costs and how the markets, real value of and demand for much of this stuff may fare in a correction – and, presumably, ongoing adjustments to any number of distortions (tax breaks, subsidies). so simply looking at a huge lump of ‘old economy’ exports (i.e. tangible stuff that can be measured by tonnage etc.) at current xr’s and world prices can be massively misleading.

does it not matter that much of china’s production is, if i understand, driven by its massive dependency on exports facilitated by tnc branch plants that can relocate and retrofit anywhere in the world? what’s the world strength of chinese brands should the tnc’s pull out?

You wrote “And since the US has the world’s largest economy by a factor of around”.

I substantially disagree. The CIA world factbook gives an estimated 2006 GDP for China of $10.17 trillion. The comparable number for the United States is $13.21 trillion. Given China’s growth rate, China will be number one in roughly 3 years.

The vast scale of China’s economy compared to the US is evident in many dimensions. China is, by far, the largest producer and consumer of basic goods, including coal (2.5X the United States), steel (3-4X the United States), cement (10X the United States), aluminum, copper, nickel, etc. China will become the largest trading nation on earth (measured by exports) either this year or next. Apparently, China became the largest producer of greenhouse gases in 2006.

One very broad statistic is electricity production. China produced around 2,834.4 Terawatt hours in 2006 (BP Review of World Energy). That’s almost exactly 2/3rds of US production. A quick check of the trendlines shows that China will pass the US in power production around 2010-2011.

Note that these datapoints exclude Hong Kong and Tawain.

Looking at all of the numbers, what makes more sense? China’s GDP at 33% of the US level or 77%?

Thank you

Peter Schaeffer

http://unstats.un.org/unsd/snaama/dnllist.asp

Using the spreadsheet based on prices in current U.S. dollars, in 1970 the U.S. manufacturing was 32.84% of the world total. In 2006, U.S. manufacturing was 20.53% of the world total.

If the dollar is currently overvalued versus the rest of the world, the U.S. manufacturing share in reality would be even lower of course.

In 2006 China was 2nd at 13.04% of the world total. If China’s currency should be worth 50% more than it is now, China’s manufacturing sector would be about the same size as the one in the U.S.

You are absolutely right to be skeptical of the claims of the health of manufacturing. The government figures for the growth of manufacturing output are significantly overstated because they undercount the importance of offshoring. Take a look at my story from a couple of months ago…
http://www.businessweek.com/magazine/content/07_25/b4039001.htm

Russ Winter’s comment:

“Another low volume moral hazard gaming fume rally. Obviously every Berserker and his brother knows about 1484 S&P level, Fib retrancements, etc, so they are trying to goose it through synthetically a la “snakes in suits” and squeeze some more shorts. And all led by the same ol same ol global, inflationary suspects.

$31.5 billion in temporary repos expire on Wednesday and Thursday. Will the Fed roll them?

Fed let $2 billion expire today, took no MBS, and only accepted some Treasuries at 5.20% stop out. That’s 73 bps above the 3 month T-bill auction result, so what’s the message? Wile E Coyote?

The commercials don’t appear to be buying all this, biggest short on the Eurodollar in a long, long time.”