Friday, September 16, 2011

GDP and Wealth

People confuse GDP with prosperity. Wikipedia is amazing (I donated, so should you. It is one of humanity's treasures.)
"Gross domestic product (GDP) refers to the market value of all final goods and services produced in a country in a given period."
In a given period. There is no reason for a country's GDP to never substantially and rather permanently decline. China's GDP was somewhere around USD 6 Tn in 2010. The absurdity of denoting GDP of China in USD with a questionable exchange rate between CNY and USD is appalling. Nonetheless, there is something interesting that occurred to me today; and of course, since I am not some fancy economist, as soon as I say this people will say, "O of course, that is quite evident." As an aside, this should be a good thing to look at some years from now.
Without pulling out GDP growth rates, I can assume that Japan's GDP since 1990 has rarely been lower than USD 5.5 Tn. That is 20 years or so of USD 5.5 Tn. Even without compounding - and well, we can't compound GDP - that is  USD 110 Tn. I am trying to put a point across.

A country need not 'grow' its GDP in order to be largely prosperous. For everything that is said about Japan's GDP growth rate, people forget that the GDP is largely sustained. This adds wealth to an economy and to its people. That wealth improves prosperity and puts a country's enterprises in a position to foray overseas. Japan is still a strong economy. Large Japanese corporations are spreading themselves globally - Mitsubishi, Toyota, Honda, Tokio Marine, Hitachi, Nissan, Sony, Panasonic, Toshiba, Dai-ichi Life, Mitsui Group, Sumitomo Group. These are quite large names, globally. 

If China stops spending on infrastructure its USD 6 Tn economy is going to take a nose-dive. One cannot refute this statement. That said, let me name large Chinese companies.
Sinopec, Petrochina, Stategrid Corp. of China, China Mobile, China Railway ..., China Life Insurance, ICBC,  Ag Bank of China, CIC. Most, if not all, are state-supported. So were many Japanese companies (indirectly).

But let's compare Japanese companies to these Chinese companies. 
Japan is technology and insurance.
China is energy, commodities, infrastructure and banks. 
Very different in their trajectories. The future for Chinese companies seems bleak - they don't seem to have real competitive advantages unless one calls cheap/ free land, cheap/ free energy, subsidies and cheap finances competitive. The world is going to use China as a case-study a few years from now.

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