Lesson 2 Income Level and the World Market
In assessing the potential of a market, people often look at its income level since it provides clues about the purchasing power of its residents. The concepts national income and national product have roughly the same value and can be used interchangeably if our interest is in their sum total which is measured as the market value of the total output of goods and services of an economy in a given period, usually a year. The difference is only in their emphasis. The former stresses the income generated by turning out the products while the latter, the value of the products themselves. GNP (Gross National Product) and GDP (Gross Domestic Product) are two important concepts used to indicate a country’s total income. GNP refers to the market value of goods and services produced by the property and labor owned by the residents of an economy. This term was used by most governments before the 1990s. GDP measures the market value of all goods and services produced within the geographic area of an economy. It has been preferred by most countries since the 1990s.
The difference between GNP and GDP is that the former focuses on ownership of the factors of production while the latter concentrates on the place where production takes place. For example, the dividend returned by the subsidiary of Microsoft in China is included in the US GNP but not in its GDP. And the production of the same subsidiary is included in China’s GDP but not in its GNP. The difference between GNP and GDP can be ignored since it is very small in most cases. People can use whichever term that is more easily available and they can compare a country’s GNP and another country’s GDP without worrying that the result would be terribly distorted. For instance, in 1996, the US GNP was 7637.7 billion US dollars and its GDP was 7636 billion US Dollars, a difference of only 0.02%. And in 1999, China’s GNP was 8042.28 billion yuan Reminbi and its GDP was 8191.09 billion yuan, with a difference of 1.8%, still insignificant though larger than the US figure.
In assessing the potential of a country as a market, people often look at per capita income. Similar to the case of national income and national product, per capita income and per capita GDP do not have much difference. So let’s use per capita GDP to illustrate an economy’s income level. It is calculated by dividing its total GDP by its population. Total GDP indicates the overall size of an economy, which is important in market assessment for durable equipment or bulk goods such as grain, steel, or cement. Per capita GDP reveals the average income level of consumers, which is important then marketing consumer durables. For example, China has a large GDP of roughly USD 1.4 trillion in 2003, being the seventh largest economy in the world. If adjusted by PPP, the figure would probably be as large as USD 6.4 trillion, accounting for 12% of the world’s total and ranking the second only after the USA. So China is not only a newly emerging producer but also an important newly emerging market. However its per capita GDP is still fairly low, just a bit over USD 1100. Though $1000 per capita income is believed by experts to be the level at which consumerism begins to emerge, the Chinese figure is still rather low, ranking only the 111th in the world. In contrast, Singapore has a GDP of roughly a bit over$ 100 billion, but a per capita income as high as $ 32 810. Obviously China and
