Ladies and gentlemen, may I draw your attention to the curtain over here, to where the beautiful Miss Wong is standing … Now watch carefully… I am now going to make US$4 trillion magically disappear!!

OK, while it may not have been that dramatic in the execution, that is in effect what the World Bank recently did when they published updated statistics on the economic output of 146 countries, utilizing a method called “Purchasing Power Parity” (PPP) leading to a revised estimate of China’s GDP to $6 trillion. This is down from previous statistics which had it pegged at $10 trillion.

From the website:

In a report ranking the world’s economies for 2005, the World Bank said its updated survey using ‘purchasing power parity’ (PPP) shows a much smaller value for China than earlier estimates…The [International Comparison Program] study carried out by the World Bank and other partners was ‘the most extensive and thorough effort to measure the relative size of 146 economies using the PPP method which strips out the effect of exchange rates…

So, what impact can be expected by such an evaporation of trillions of dollars? Well, China is still the number two economy in the world, but the point at which it can be expected to overtake that of the US would certainly appear to be pushed back a few years. And the domestic problems it faces due to widespread poverty may begin to seem a bit heavier a burden.

In an article in the Los Angeles Times, summed it up like this:

For Americans, the new numbers from the World Bank bring good news and bad. On the plus side, U.S. leadership in the global system seems more secure and more likely to endure through the next generation. On the other hand, the world we are called on to lead is poorer and more troubled than we anticipated.

While its true that China is one of the largest investors in the house of cards that is the US economy, it may very well turn out that as this century progresses, the rest of the world might start investing more and more in China, and Chinese currency, and less and less in the US dollar. The Chinese yuan may even become the preferred currency in the world. Still, $4 trillion vanishing into thin air must certainly be having a chilling effect in Beijing this New Year’s, beyond that which the cold Siberian wind blowing down from the north brings . Reddit Slashdot Digg Facebook Technorati Google StumbleUpon Furl Yahoo Ask Mister Wong China Newsvine Simpy Spurl Wink Rawsugar Squidoo Fark