In paragraph 3, look at the four squares [■] that indicate where the following sentence would be...

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Read the passage below, and answer the paraphrasing questions that follow.

Two Economic Giants

The last two decades have witnessed an important shift in the global distribution of economic power. ■ Since the middle of the 20th century, the United States has been the paramount economic force in the Western Hemisphere, with a peerless industrial base and strong technology and service sectors. ■ In the last 20 years, and especially in the last 10, China has emerged as a powerhouse, eclipsing Japan in the Pacific as Asia’s largest economy and rapidly overtaking the global lead of the United States. ■ As a consequence, many economic parallels can now be added to existing geographic similarities between China and the United States. ■ Despite these similarities, there remain a number of significant economic and demographic disparities between these two economic giants.

Both China and the United States are very large nations. At 9.5 million square kilometers, China is only slightly smaller than the United States, which occupies 9.6 million km sq. Both countries occupy a similar range of latitude, with an attendant diversity of climatic conditions, and both have long coastlines and good ports. Like the United States, China is gifted with diverse natural resources, including metals and timber, and significant domestic energy sources, especially fossil fuels and hydropower.

Physical similarities are now joined by economic congruities. China’s economic base is coming to rely on manufacturing and other industry. The country is quickly catching up with the United States in this area, with approximately US$2.7 trillion gross domestic product (GDP) in 2006, as compared to the American $13 trillion GDP. Like the U.S. government, China’s government depends heavily on deficit spending: the U.S. public debt is currently about 60 percent of the American GDP, and China’s has reached just over 20 percent of the Chinese GDP. However, annual inflation of consumer prices is below 3 percent in both countries.

■ China’s economy, though rapidly industrializing, cannot be considered a free market economy based on the U.S. model, since major segments of the Chinese economy are government-run enterprises sheltered from competition. ■ Dependent on the mood of foreign consumers and investors, China’s export-driven economy needs to develop a large and stable domestic market before it can achieve the diversity and resiliency of the U.S. economy. Not all of the differences between the two economies place China at a disadvantage, however. ■ For example, China’s 10.7 percent annual growth in 2006 was triple that of the United States; the country enjoys a positive balance of payments, at over $200 billion in 2006, in contrast to the massive $582 billion U.S. trade deficit in the same year; and China’s capital investment rate far exceeds that of the United States. ■

The huge and increasingly well-educated Chinese workforce (which at 750 million is five times the size of America’s) can be given much of the credit for China’s rapid growth. Foreign investment finds the abundance of inexpensive labor an important advantage over the expensive U.S. labor market. Nevertheless, at least 10 percent of the urban Chinese population is unemployed, probably more in rural regions, whereas the U.S. unemployment rate hovers around 4.5 percent. A further consequence of China’s large population is that, distributed among so many people, its $2.7 trillion gross domestic product is only around $2,000 per capita, compared to just over $42,000 per capita in the United States.

Persistent American fears of being overshadowed economically by China are not entirely unfounded; the Asian nation is indeed growing very rapidly. However, a developing energy shortage promises to slow that growth, and as Chinese labor costs rise, as they inevitably must, the country will become less attractive to foreign investment. By that time, however, China may well have acquired a healthy component of domestic capital, and its increasingly affluent population will in turn become a market for American exports. The next few years are likely to see the economic connection between China and the United States develop into a prosperous partnership.

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In paragraph 3, look at the four squares [■] that indicate where the following sentence would be added to the passage.

Despite these similarities, a number of important differences must be noted, both in the two countries’ economies and their demographic bases.

Where would the sentence best fit?

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