Who knows if China will exceed Germany in terms of GDP by 2007?

When I went to China, I was always impressed by the speed of its development. Nowadays only the Gulf can rival that. Some people have expressed bullish views on China, saying that its GDP will overtake Germany by this year. If that’s true, China will become the third largest economy in the world, behind US and Japan

Xinhua, the official national news agency, reported on July 19, 2007, that China’s GDP in 2006 was higher than prelimianry figures

The Chinese government last week revised the 2006 GDP up by 146.4 billion yuan over the preliminarily calculated figure to 21.0871 trillion yuan (2.7 trillion U.S. dollars), moving the country even closer to overtaking Germany as the third largest economy

Deutsche Bank predicted that China’s economy will grow significantly in 2007

Deutsche Bank has raised its forecast for China’s economic growth in 2007 to 10.7 percent from 10.0 percent, as a growing list of investment banks revise their outlook after strong activity in the first five months of the year

But whose opinions should you trust? The opinion markets?

As a student of economics, I believe the market is the best predictor. There is an opinion (or inkling) market on the Internet, where people trade a stock on whether China’s GDP will exceed that of Germany. The stock price indicates the probability that China’s GDP will exceed that of Germany by the end of 2007

Here is the “stock price”, i.e. probability of China’s GDP exceeding that of Germany by the end of 2007

Here is the historical trend for the past week. The market has not changed much on its belief that China will have a ~70% chance of becoming the world’s 3rd largest economy. The stock price has been quite stable, hovering around $70

If it turns out that China’s GDP is greater than Germany’s, the stock will pay $100. Otherwise, it will pay $0

Do you want to express your views? Buy or sell opinion stocks here. If you are positive that China will overtake Germany, buy the stock. If you are negative, sell it. Even if you’re neutral, you can trade. Say, if you think there’s a 50/50 chance that Germany will still be the world’s 3rd largest economy in 2007, sell the stock because the price implies a 30% chance. If you are good enough at predicting what others think, you don’t even have to wait until the date of information release to take profits

Don’t worry as you’re just playing with fake money. If it’s for real, the markets will probably be much more accurate, as people will put in much more thinking before betting

I bought some stocks on this (China will overtake Germany), how about you?

Views on growth of Chinese economy

Bullish views

Colby Buzzell on Shenzhen’s (a city in Southern China, the tip of the Pearl River Delta) development

It’s a city of eleven million that did not exist twenty years ago. Now it’s home to 11 million people with “hundreds of construction cranes stalking the landscape like dinosaurs

Birth of a new economic giant - China

In short, we are now poised for the greatest economic boom the world has ever experienced. With two primary locomotives driving the economic growth - China followed by India

Neutral / cautious / uncertain views

CHINESE ECONOMY Be careful what you wish for

Cheap imports from China have helped to hold down prices in America and other developed economies. However, a flurry of recent reports suggesting that Chinese wages and prices are surging have triggered fears that China is now exporting inflation, rather than deflation, to the rest of the world

Obstacles to taming the “Dirty Dragon”

As incomes rise China’s environmental record will improve. Corruption can be tamed. This however all takes time

Bearish views

Questioning China’s Rise

Mathematically, if the overall economy were to grow 10 percent annually, and the 70 percent of the economy that is based in rural areas was not growing, as stated by the Chinese government, the economy in Chinese cities would have to be growing by 33 percent a year. The urban economy is growing rapidly, but not at a 33 percent pace

The Nightmare Crash No One Talks About

The mitigating factors in the Communist Chinese economy will cause much more pain than a Goldman Sachs hedge fund defaulting someday

Game theory is a tool used to understand decisions made in situations involving several players. These situations range from wars to family relationships, from president election to bargaining in the black market. Businesses also use game theory to make strategic decisions

One guru on game theory is Roger Myerson. He is a professor at the University of Chicago. I find the following pages on his website interesting

- Academic papers marrying public policy and political decision-making with economics

- Excel add-ins that add statistical functions for Monte Carlo simulation and risk analysis. His tools supplement Excel’s weakness in probabilistic calculations. The add-ins allow users to generate Poisson, beta, gamma and log-normal distributions, as well as some other analytical features

- Syllabus of graduate-level economics classes at the University of Chicago. Here I got a chance to learn what the teach in one of the world’s best school of economics

- Roger Myerson’s Curriculum vitae (CV in pdf). To become a prominent academic is not easy. The long list of positions held and papers published helped me realize this. If I were to go into academia, better be ready for that. It’s also fun going through his professional journey on paper

More information on game theory
Wikipedia entry

Gametheory.net
- Books, academic papers, and online games on game theory for professors, students and practitioners

Kuwait is a major oil exporting country, and it’s economy is highly dependent on the oil sector.

Here is a piece of interesting statistic that I’d like to share. Below is a list of the 10 largest industrial and service sectors in Kuwait, and their contribution to GDP. Oil is the largest sector, bigger than all the 9 other top 10 sectors combined

While the economy is booming now due to high oil price, this situation should not be taken for granted. If oil price plummets, the economy will face big problems. It should diversity its economy away from oil to better react to oil price fluctuations

GDP contribution from each sector
2005 figures, in USD millions

1. Energy, Mining and Quarrying (24)
2. Public Administration, Sanitary and Personal Services (8)
3. Business Services (3)
4. Real Estate & Dwelling (2)
5. Petroleum Refineries (2)
6. Financial Institutions (2)
7. Retail Trade (2)
8. Wholesale Trade (1)
9. Communications (1)
10. Transportation & Storage (1)

The data can be obtained from the Central Bank for free, or international data vendors, e.g. Global Insight, at a cost

Central Bank of Kuwait

Ministry of Planning

Although the fate of cities often may depend more on luck than meticulous planning, Governments often try to spearhead development by launching grand projects. Officials are perhaps inspired by the few success stories, and the glory that come with them

One rare success story is the Buj Al Arab hotel in Dubai
Before the hotel, Dubai was a small town in the Gulf. Without much oil, it was economically and politically unimportant than UAE’s capital, Abu Dhabi. Completion of Buj Al Arab has marked Dubai’s transformation to a vibrant international city. Overnight, people have started flocking in. It gives hope, showing that nothing is impossible, if you have a dream. So the Dubai dream has attracted many international talents to work there. The city then enters a virtuous cycle. Everyday, new buildings are added and new grand schemes announced. It’s now one of the most dynamic cities to be in

Architectually, the hotel is a masterpiece. It combines Dubai’s tradition, sailing, fishery and pearl, with the most ultra-modern materials and design

I’ve learnt a lot from Buj Al Arab and Dubai. One lesson is that every great city needs a triggering structure. It needs to be stunning and inspiring to everyone. It needs to bring hopes to people and encourage them to dream bold. This makes me think of another masterpiece, the Eiffel Tower

For more information about the UAE’s economy, see the Economic Development section in the UAE 2006 report. Official sources, of course, will never associate a city’s success with emotional buildings

From the Economist magazine, I learnt about an opportunity to do meaningful work in Vietnam, Laos and Cambodia. Some donor governments have set up an agency to develop economies in the so-called Indochina region. They need a team of people from overseas to kick start the project

The Indonchina region has so far bypassed the economic miracle enjoyed by other Southeast Asian countries. They have lots of natural resources and a young labor force. Right now, they’re a big exporter of drugs and prostitutes

Their people deserve better