U.S. Federal government spending in 2006 will be larger than the entire economy of China.
Brian Wesbury (Chief Economist at First Trust Advisors in Lisle, Illinois) wrote yesterday (17 October) on the opinion page of the Wall Street Journal (US Edition: http://www.wsj.com) that the US Government spending for 2006 will be about 2.7 trillion dollars. That’s larger than the GDP (exchange rate basis) of China, according to Mr. Wesbury.
The point isn’t really about the relative size of the economies. One would have to compare on a purchasing power parity basis to have a fair comparison. Mr. Wesbury’s main point is that the US economy carries a huge tax burden, which it certainly does.
For businesses interested in China, I think that his piece does help put the relative size of the two economies and the business opportunities in perspective. China is growing fast and the long term growth is huge (and then some), but at present the growth is on a small baseline. Firms looking to fill revenue holes from other stagnating or shrinking economies should keep that in mind for the next few years. Many firms I talk to have expectations about the opportunity in China that are not aligned with the actual present size of the market in China. In fact, many seem to build more than they need now while paradoxically not putting in the ability to scale later.
Getting in to China now is smart. Getting in now with a business plan that is aligned with the opportunity and that can grow with the market is even smarter.
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