Forget defense buildups. There are far easier ways to deal with the "China threat." Just crunch the numbers. A recent recalculation by the World Bank has shrunk the Chinese economy by some 40 percent. This should quiet the alarmists who maintain that China's dominance is just around the corner. China is big and a geopolitical force to be reckoned with. But there is little chance that it will overtake Japan or the United States any time soon.
Economists use various tools to measure economies. Total economic output is a simple yardstick, but it is inexact. Prices differ from country to country so some standardization is needed to make meaningful comparisons. The most famous measure is the "Mac Index," which uses the price of a McDonald's hamburger as its indicator. If a Big Mac costs ¥300 in Tokyo, and $3 in New York, then a dollar is worth ¥100. The number should then be used to make comparisons of Japan and the U.S. This is called finding purchasing power parity (PPP) to ascertain an economy's real size.
Meaningful analysis requires data. China had not participated in price surveys so the baseline that economists used to calculate Chinese prices was based on 1985 data, which assumed $1 was worth 2.1 yuan. Recently, the Beijing authorities allowed data collection on over 1,000 items. Using this information, the economists concluded that $1 was actually worth 3.4 yuan. As a result, the calculation of China's GDP in 2005 shrank from $8.8 trillion to $5.3 trillion, a 40-percent reduction — it is as if half of Chinese wealth had disappeared.