When Exactly Will China Rule the Economic World?

It may already. Here's why you shouldn't care.

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China Stringer Network / Reuters

An investor looks at an electronic board showing stock information at a brokerage house in Huaibei, China September 9, 2013.

The American political and chattering classes are obsessed with the rise of China and America’s “economic competition” with the world’s most populous nation.

President Obama himself often uses the language of competition to describe the reasons for his policy proposals, like education initiatives that will help us fend off countries like China and India hoping to “out-educate and out-compete” us. And if economics is a competition, then the best measure of success must be GDP, which economists use to measure the total value of goods and services a country produces.

In coming years, we’ll hear a lot about the size of China’s economy surpassing that of the United States. The latest prediction is out from the Centre for Economics and Business Research, which says that the Chinese economy will grow larger than America’s in 2028.

This is actually much later than some forecasts predict. The OECD for instance argues that China’s economy will be bigger than America’s by 2016. And other economists like Peterson Institute for International Economics’ Arvind Subramanian predict that China’s economy is already bigger than the United States’.

How can these estimates be so far apart? The main reason is that it’s difficult to compare different country’s economies when they use different currencies and when the citizens of those countries have much different purchasing power.

For instance, 1 U.S. dollar is worth 6.05 yuan. So a simplistic way of comparing U.S. and Chinese GDP would be to divide Chinese GDP in Yuan by 6.05. But in reality, prices in the U.S. are somewhat higher than those in China, so 6.05 in Yuan isn’t going to buy the same amount of goods in the U.S. as it would in China. This is why economists try to estimate exchange rates adjusted for purchasing power. And it’s through this process of estimating differences in purchasing power that you get such different estimates of GDP.

The upshot is that the Chinese economy could already be bigger than our own. Does this knowledge make you feel any different? No? Well, it shouldn’t. That’s because, fortunately, economics isn’t about competition. It’s about collaboration.  Americans should hope for the Chinese economy to grow because that means there will be a larger market for the goods and services we create here in the U.S.

And in terms of economic output per capita, the U.S. is way ahead of China by a factor of more than 8. That’s because there are far fewer Americans than Chinese, so even if Chinese output equals America’s, there’s a lot fewer people here that must share in it. In other words, the average American is far wealthier than the average Chinese, and will be for many years to come.

17 comments
Dacidly
Dacidly

Amazing...for most of my long(ish) life the greatness of America was defined by the size of it's economy.


Nobody ever said Luxembourg or the UAE  were "greater" because they were richer per capita. 


Now that China is about to overtake the US in terms of sheer size of it's economy, in terms of it's control of global resources and in terms of it's ability to spend more than the US on military and other measures of power...size no longer matters!



GuoLiang
GuoLiang

>That’s because, fortunately, economics isn’t about competition.


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SavvyInvestor
SavvyInvestor

The basic answer is never.  The per capita real income of an economy without the rule of law can not get past the lower middle range of countries.  And it can only get there 1) if their inefficient public and private employers copy the employers of the advanced economies; and 2) only so long as the advanced countries continue to import from china more finished goods than they export. 


All that, of course, will change after the revolution and per capita real income in china may be able to grow past the lower middle  - if the revolutionaries adopt the rule of law when they take over - as they inevitably do in countries without the rule of law.  (just ask the Russian, etc al).

ThomasBrown
ThomasBrown

"That’s because, fortunately, economics isn’t about competition." The Chinese are 100% competitors. They compete at everything, and they are nationalistic.

Buck88720490
Buck88720490

The author is confusing Nominal GDP with PPP(Purchasing Power Parity) GDP. The Centre for Economics and Business Research is measuring in Nominal terms whereas the OECD and Subramanian are measuring PPP.


Nominal and PPP are significantly different measurements. China's economy in 2013 in Nominal terms was $8.939 trillion, while the size of its economy based on PPP was $13.374 trillion.


China is still on track to surpass the US in 2016 based on the OECD and IMF PPP projections.

ChinaLee
ChinaLee

China's growing economy is good news for the United States.

GM has announced a record 3.16 million sale of GM cars in China for 2013. Ford also announced record-breaking sales of 935,813 Fords in China.

In contrast, GM sold a meager 2,000 cars annually in Japan. Ford also sold a disappointing 3,000 cars annually in Japan (source: JapanToday news article). By the way, Japan is the world's third-largest car market.

InfinitySpace
InfinitySpace

The article is right, and not right. It is right in that there is a an element of corporation. If China is economical strong, there would be more Chinese buying American goods, and that means higher profits. On the other hand, china cannot constant just consume before it hits a wall. This means the chinese also needs to produce. 

RobertNguyen
RobertNguyen

"And in terms of economic output per capita, the U.S. is way ahead of China by a factor of more than 8. That’s because there are far fewer Americans than Chinese, so even if Chinese output equals America’s, there’s a lot fewer people here that must share in it. In other words, the average American is far wealthier than the average Chinese, and will be for many years to come" . This is absolutely untrue as 95% of the income earned in the US is concentrated in the top 1%. 

America should be scare very scare as there are more forces to harm it sitting on the top than the helpless mass supporting sitting at the bottom...

Competition in economics will lead to competition in military. Here the US is losing big as Chin-com side is using its economic might to build up its military might and not afraid to tell the US to get out and stay out of its self define core interests; while the US is bankrupting its economic system to maintain an un-practical war system.

tom.litton
tom.litton

It isn't so much the economic might that has people worried.  But with economic might, also comes military and political might.  That has people worried. 


We didn't win the cold war because are military was bigger.  We won because our economy allowed us to build up our military to such an extent, that when Russia tried to keep up, their economy collapsed.


I'm worried it will be the same thing with China, except we will be on the loosing end.   And the possibility of a full military conflict in the mean time has me a bit worried.

ThomasBrown
ThomasBrown

@ChinaLee^^^^  See. I told you that the Chinese are competitive. They only collaborate if it means they will be more competitive.

InfinitySpace
InfinitySpace

@tom.litton 


There really isn 't conflict if America just let China  be what is its historical right. The dominate regional hegemon in East Asia. The otherwise option is "uncertainty", and a bad feel that comes about for fear of revenge. 

ThomasBrown
ThomasBrown

@InfinitySpace@tom.littonA right to dominate? Piffle. No one has any kind of right to dominate others. They dominate if they have the power to do it. China has a lot of enemies though.