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bg2547 - No 2547 The United States vs China Which Economy...

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Abstract: China’s leap from poverty due to the marvel- ously successful market reforms introduced in 1978 has obscured serious weaknesses in its economy—especially compared to the American economy. These weaknesses have been exacerbated by renewed Chinese state interven- tion that began around 2003. Many seem convinced that China is at the cusp of surpassing the U.S. economically. But Americans should not lose track of their huge advan- tages over the Chinese—in income, in natural resources, and in surprising areas such as labor. Heritage Foundation China and economic expert Derek Scissors explains why it is vital that the U.S. remember its strengths and recognize profound Chinese weaknesses. There is increasingly loud talk of China surpassing America in raw economic size within the next decade, or, adjusting for purchasing power, as soon as this year. Some of these claims are plainly inaccurate, most are misleading, and all are potentially harmful. The claims contribute to false impressions about the future of the Asia–Pacific region, even the world as a whole. Perceptions of China’s economic strength and importance underpin its global presence, from its own borders to sub-Saharan Africa and Latin America. A deeper look, though, shows that the People’s Republic of China (PRC) is still far smaller and poorer than the U.S. on the most important economic dimensions, so its true global weight is correspondingly limited. While this paper focuses on economics, all U.S. pol- icy should be founded on good information about Chi- No. 2547 April 14, 2011 The United States vs. China— Which Economy Is Bigger, Which Is Better Derek Scissors, Ph.D. This paper, in its entirety, can be found at: http://report.heritage.org/bg2547 Produced by the Asian Studies Center Published by The Heritage Foundation 214 Massachusetts Avenue, NE Washington, DC 20002–4999 (202) 546-4400 heritage.org Nothing written here is to be construed as necessarily reflecting the views of The Heritage Foundation or as an attempt to aid or hinder the passage of any bill before Congress. China has very considerable economic weaknesses, including some that are not well known: low income levels, resource depletion, and high unemployment. Complications in measuring the sizes of the American and Chinese economies have led to mistaken predictions that China is about to pass the U.S. If China quickly returns to the path of market reform, it will claim the lead in economic size about 2025. If the PRC does not return to the market, it may never pass the U.S. America has major advantages over China in terms of natural, financial, and human resources. Economic performance does not follow trends, it follows policy. The U.S. must resist the urge to imitate bad Chinese policies, and instead encourage China to improve its poli- cies, which will benefit both countries, and the rest of the world.
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