Just How Big Is China? Bigger Than You Think

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More than a third of the world's products come from China.

By now, everyone knows that China is the world's No. 2 economy and growing.  Its GDP is around $7.5 trillion compared to the real No. 1, the U.S., at over $15 trillion. But that is changing. Just as each passing year seems to go faster than the next, China's position on the world's stage moves at break-neck speeds.

Just how big is China?  It is way bigger than you think.

Within three years, the Organisation of Economic Cooperation and Development believes that China's economy will surpass that of the United States.  That means that by the time President Barack Obama is no longer in the White House, the new president will be the first since World War II to not govern the most powerful economy on Earth. Most estimates had China's economy toppling that of the United States by 2020.

Last year, China beat Germany and the U.S. to become the world's biggest tourist source market.  More middle-class Chinese are hightailing it out of their country. They are going luxury goods shopping in Europe and shaking hands with Goofy in Disney World.  They spent over $102 billion last year, up from $73 billion in 2011, according to the United Nations World Tourism Organization. And they did this at a time when their economic growth is slowing due to a slowdown in Europe and a shift in domestic economic policy.

Surprisingly, or not, China doesn't need to grow at 10% to be in the big time.  A slower 7.5% is just fine.

China has tons of problems. It's got the worst smog in the world. It's currently battling another round of bird flu, a new strain that's already claimed the lives of four people in a week.  Over 16,000 diseased pigs were dumped in Shanghai rivers in March, possibly causing the outbreak of bird flu in the first place.  In China, the phrase "Don't drink the water!" needs to be heeded carefully. Decades of waste poured from factories and cities into China's rivers have turned many of them into open sewers, according to the World Wildlife Fund. About 40% of the water in the country's river systems is unfit for human consumption. China produces a new coal-fired power station every week, and will be the world’s biggest emitter of carbon-dioxide by 2030.  Air, water and rising income inequality are now serious social problems for Beijing.

This is what you get for growing so big, so fast. China's economy has been on steroids for over 10 years.

According to the latest research from the United Nations, China has further outpaced its competitors in world manufacturing, generating $2.9 trillion in output annually versus $2.43 trillion from the U.S., the world’s second-largest manufacturing economy.

Over the last two years, China’s manufacturing sector has made strong gains, while the U.S. has been on Fed life support.

“In 2011, China’s manufacturing output surged by 23% while manufacturing output in the U.S. only increased by 2.8%,” the American Enterprise Institute's Mark Perry said in his Carpe Diem blog on Friday. “That brought China’s manufacturing output last year to more than $2.9 trillion, which was almost half a trillion dollars (and 20%) more manufacturing output than the $2.43 trillion of manufacturing output that was produced in the U.S. last year.”

In 2012, U.S. manufacturing slipped to 1.7% growth, according to the Federal Reserve.  Sure, U.S. manufacturing is getting bigger. But China's manufacturing is getting humongous.

China drives Asia, and Made in China drives the cheap, consumer culture in America.  Buy sneakers or a shirt, a piece of furniture or a Barbie Doll, and it probably has Made in China stamped on it.  Even as U.S. manufacturing is on the upswing, it is no match for big China.

The U.S. imports from Asia rose 22% in February. Most of it comes from China, of course. In fact, the U.S. imported $32.7 billion worth of goods from China in February, according to the U.S. Census Bureau's Foreign Trade division, making it once again the leading country in which the U.S. conducts its foreign trade.  Canada came in second with $25.7 billion, but that is mostly due to oil.  Even as China moves its way up to the No. 3 trading partner with the U.S., trailing NAFTA partners Canada and Mexico, the trade deficit between the U.S. and China keeps getting bigger.

In 2012, the U.S. registered its biggest trade deficit ever with China at $315 billion, up from a record $295 billion in 2011 and another record of $273 billion in 2010.  Yes, China keeps breaking records.

As it does so, it needs to modernize its environmental and worker safety standards, presenting a myriad of opportunities for companies who can help them get there.  Despite all these challenges on the ground, China manufacturing is booming.  It is moving out of its old traditional sectors and into newer, value-added, and high-tech ones.  This is no longer a Happy Meal economy.  According to Hong Kong-based quality control inspection consultancy, AsiaInspection, manufacturing growth in China's food industry is up 212%. It's up 36% in beauty and skin care products and 42% in mechanical goods manufacturing.  Those kind of numbers are hard to find in any other country on earth, even in India, which has almost as many people as China.

This January, Walmart made headlines when it committed to invest $50 billion in "Made in America" products over the next 10 years. To put that into perspective, Walmart's 2012 global sales revenue was $443.9 billion, according to the multinationals 2012 Annual Report.  Assuming Walmart invested $5 billion a year in the U.S., that would equate to less than 1% of Walmart's 2012 sales invested in America manufacturing. .

AsiaInspection figures released on Friday suggested that manufacturing outsourcing from the West continues unabated.  There was a 15% increase in factory inspections requested from North American customers alone in the first quarter.

China is expanding while the U.S. -- as dynamic as it is -- is struggling to survive beyond Fed stimulus programs, as was witnessed by Friday's payroll report.

According to the U.S. China Business Council's October 2012 survey of mulitnationals doing business in China, the majority of companies plan to continue expanding operations there, with some now looking beyond the east coast super cities like Shanghai to central and western provinces for new markets.

Remember the old saying "will it play in Peoria"?  That is now becoming "will it sell in Shanghai."

As a testament to China's bigness, Disney's Iron Man 3 will first be showing in a China movie theater. Disney's even invested in making a slightly different version, just for the Chinese market.

This is the new world.

It might not be pretty, with all those dead pigs and dead rivers floating around.  China will have to do something about it or risk increasing environmental hazards that eventually lead to health crises in this aging population of 1.3 billion.  Time and sheer numbers are on China's side.  It's not too late for them to clean up what has to be cleaned up, and become even bigger.  Indeed, everyone on the planet is now fully expecting it.

A look at where China cities figure in world real estate pricing trends.

