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