China's GDP Poised To Top Germany's As Power Shift Speeds Up

By MARCUS WALKER in Berlin and ANDREW BATSON in Beijing

July 16, 2007; Page A2

Chinese statistics due this week are likely to show that the country is on track to leapfrog Germany as the third-biggest national economy this year, sooner than expected -- yet another sign of just how quickly the global economic balance of power is shifting.

Overtaking Germany in absolute terms may not be seen as an important triumph to China's leaders, whose priority is raising incomes and living standards that remain far below those of the developed world. And it might not be surprising that a country with 1.3 billion people produces more in a year than Germany's 82 million inhabitants. But passing that milestone could add to increasing anxieties in wealthy nations about China's rise.

Recent estimates put the size of China's gross domestic product last year at $2.8 trillion, breathing down the neck of Germany's $2.9 trillion national output for the period. Only the U.S. ($13.2 trillion) and Japan ($4.4 trillion) have bigger economies, according to International Monetary Fund data. GDP measures the total value of goods and services produced in a nation.

Chinese government data for the second quarter, due out on Thursday, are expected to show that Chinese output grew by around 11% in this year's first half, a rate that economists think China will maintain this year. Even optimistic predictions for German growth, at close to 3%, are no match for that.

As recently as 1999, China was only the world's seventh-biggest economy. It has since leapt past Italy, France and the United Kingdom. If it manages to maintain its current rate of growth, it could surpass Japan in around a decade.

China's imminent overtaking of Germany is only one instance of a broader global shift. As populous countries such as China and India become major forces in the world economy, established powers such as Europe, Japan and the U.S. are becoming relatively less important. Many economists already argue that global growth is becoming less dependent on the U.S. economy, which has slowed in the past year without greatly affecting others.

Declining relative economic weight is also expected to bring declining political influence, a particular problem for European countries that partly drives the quest for closer political integration in the European Union. With a collective $14.5 trillion economy, bigger than the U.S., the 27-nation EU wields influence over trade agreements and economic regulation, and is trying to build a common foreign policy.

By another measure, known as purchasing-power parity, China is already the world's second-biggest economy. If exchange rates are adjusted to equalize the cost of goods in different countries, then the value of China's total output was $10 trillion last year, according to estimates by the IMF. That eclipses Japan's $4.2 trillion and Germany's $2.6 trillion, and is hot on the heels of the U.S.'s $13 trillion economy on this measure. Purchasing-power parity tends to make developing economies appear bigger than comparisons using current exchange rates, because a dollar can often buy more goods in poor countries than in rich ones.

Some world economic institutions are having trouble adjusting to China's unexpectedly fast rise. The Group of Eight leading nations, initially conceived as a talking shop for leaders of the world's biggest capitalist economies, looks increasingly like an exclusive club of developed countries. It doesn't include China, even though China's economy is larger than that of five G-8 members. Russia was the last country to gain full membership. To preserve its relevance, the G-8 now invites nations with major emerging economies such as China to attend parts of its meetings.

China has also complained about its representation at the International Monetary Fund. While recent changes have given the country more clout, it wasn't able to stop an IMF resolution on monitoring exchange rates that seemed directed at the Chinese yuan.

One organization that has expanded to include many emerging economies, the Organization for Economic Cooperation and Development, based in Paris, limits its membership to democracies, so doesn't accept China as a member. The group has nonetheless stepped up China-focused research and exchanges.

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