size by GDP
The EU is a close second, with GDP of $15.8 trillion.
China is in the #3 spot, with GDP of $13.4 trillion.
Together, the trio make up about half the world’s GDP. (A quarter century of stagnation has left former co-#1, Japan, a mere shadow of its former self, with GDP of $4.7 trillion.)
China’s economic strategy
Since turning away from central planning toward a market economy under Deng Xiaoping, China has faced two related issues:
–creating enough new jobs to absorb new entrants to the workforce, thereby avoiding political instability, while at the same time,
–reining in the inefficient, loss making, often corrupt state-owned industrial sector, which accounted for three-quarters of all employment in the late 1970s.
Two other constraints: China had to do this without an effective central bank and with a cadre of state and local government officials who thought (many still do) that the fastest and most lucrative road to the top was to create more labor intensive, inefficient (and corrupt) local analogues of big state-owned enterprises.
China has achieved spectacular economic growth by embracing capitalism. To some degree, the remaining state-owned sector, which now accounts for just over one quarter of the economy, has also shaped up. But while doing this, China has tended to lurch between periods of substantial credit restriction to try to force state-owned enterprises to become more efficient or die, followed by excessive expansion when layoffs become too severe.
the latest wrinkle
Emerging economies, following the post-WWII Japan model, start by offering cheap labor for simple manufacturing businesses, so that they can acquire training and technology from foreign firms. At some point, a given country will run out of labor. It must then transition to higher value-added endeavors. Few succeed without a lot of heartache, because–I think–vested interests attached to the status quo are so powerful.
China now finds itself at this transition point, an issue which dominates its current economic policy.