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China Overtakes U.S. Industrial Output, Powering A Huge Military Buildup

By | January 7, 2008

      Report Says China Moving To Superpower Role As It Spends Almost 4 Percent Of GDP On Arms

      Chinese Industrial Output To Be 50 Percent Greater Than U.S. Production In Five Years, But U.S. Still Gives China Financial Aid

      China has become a manufacturing leviathan, overtaking the United States — the largest economy on the planet — in manufacturing output, and the formidable factory power of the Asian giant is powering a huge Chinese arms buildup, a new report shows.

      Authored by John J. Tkacik, Jr., senior research fellow with the conservative Heritage Foundation think tank in Washington, the report cites figures released by the World Bank.

      "As an industrial giant, China needs to be taken seriously as an international economic force and a strategic and military power," Tkacik warned.

      The huge trade deficit that the United States suffers in trade with China — $233 billion in 2006, perhaps $300 billion last year — means China is flush with American consumers’ cash, money that can be used to buy new arms and develop capabilities such as anti-satellite missiles and lasers.

      While the World Bank report is new, the fact that China is becoming a giant on the international stage is not, he observed.

      "China’s new status is not surprising" to those who observe it carefully, Tkacik stated. "China has been the world’s leading producer of steel, copper, aluminum, cement, and coal for several years. As a consumer, China surpassed Japan as the globe’s second largest importer of petroleum in 2005. In 2006, China surpassed Japan as the world’s No. 2 auto market, with total sales of 7.2 million vehicles and production of 7.3 million."

      And just last year, "China also became the world’s top producer of merchant ships. In short, one needs no number-juggling from the World Bank to know that China is an economic superpower."

      Tkacik provided the figures to back up his finding that Chinese manufacturing output now exceeds that of the United States, using World Bank calculations.

      "In 2006, America’s manufacturing sector produced about $2.7 trillion in goods," Tkacik stated. Meanwhile, "China’s manufacturing sector produced about 8.74 trillion yuan in goods, or about $1.124 trillion at the prevailing exchange rate of 7.77 yuan to the U.S. dollar."

      China artificially manipulates the value of its yuan in world currency exchange markets to gain an advantage in trade with the United States, so that Chinese goods tend to be relatively cheap in U.S. stores while U.S. goods tend to be more expensive in China.

      Tkacik asserts, however, that those figures showing the U.S. manufacturing output to be twice that of China are deceptive.

      He continued that "the real value of China’s output is more than twice the exchange-rate value, according to price studies done by the World Bank for the year 2005.

      "In an exhaustive study published on Dec. 17, … the World Bank’s International Comparison Program determined that, in China, one only needs about 3.4 yuan to buy what would be a dollar’s worth of goods on the U.S. market — far less than half of the official exchange rate. So, the World Bank lowered China’s [purchasing power parity (PPP)] — last set in the 1980s — from about 3.94 times the nominal exchange rate to about 2.38 times the nominal exchange rate.

      Not surprisingly, The Economist magazine arrived at a similar figure for PPP simply by checking the prices of Big Macs at McDonald’s restaurants around the world (The Economist sharpened the figure to 3.42 in its Feb. 1 issue).

      Sure enough, a Big Mac that cost $3.22 in Richmond, Virginia, sold for 11.00 yuan (or about $1.41) in Guangzhou.

      "The World Bank study simply confirmed that this pricing deflator is valid across the entire Chinese economy. Applying the PPP factor of 2.38, China’s $1.124 trillion worth of manufacturing output would be worth $2.717 trillion on the U.S. market–slightly higher than America’s $2.7 trillion in manufacturing output.

      So it is time to recognize that China isn’t some backward nation, or even a developing nation, but a superpower challenging the United States not merely economically, but also militarily, Tkacik stated.

      "Now that China’s manufacturing sector has nosed past the United States, America’s political leaders must begin to contemplate what China’s economy will look like in another five years," Tkacik asserted. "It will likely be half-again bigger than America’s industrial sector, giving China the capacity to assemble the building blocks of a military superpower."

      China already is procuring missiles, ranging from more than 1,300 weapons pointed toward tiny Taiwan (China may invade and conquer the island nation) to nuclear-tipped intercontinental ballistic missiles that can strike targets in the United States. As well, it has nuclear-powered submarines with nuclear-tipped missiles that can fly from beneath the Pacific Ocean to strike New York, Philadelphia, Baltimore, Washington and other East Coast points. And China is purchasing cutting edge fighter aircraft, destroyers, and more. And it is mulling whether to begin deploying aircraft carriers.

      China also is using its economic might to finance adventures in space, from acquiring the capability to shoot down U.S. military and commercial satellites, to laser systems that can disable American military satellites, to sending a taikonaut into orbit and sending a spacecraft to orbit the moon.

      Beijing leaders, flush with the power of money in trade with the United States and others, have arrived in the first rank of nations militarily.

      Thus one has to gag on the fact that China still is receiving aid from the United States, Tkacik indicated.

      "China’s boom is not necessarily bad news for the United States," according to Tkacik. "But it means that Washington can no longer condescend to China as a ‘developing’ nation in need of U.S. tax dollars for programs relating to energy, environment, and the like. China has ample money and resources to pay for these programs by itself. It also has the potential to build a superpower military. The Central Intelligence Agency suggests that China spends 3.8 percent of its GDP on arms. Therein lies the real downside of China’s economic boom."

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