China’s Economy Has Overtaken the United States, Maybe

Published on Author bednart15

China overtakes US

Based on new IMF economic projections, China has now overtaken the United States as the world’s biggest economy. This revised projection moves up the point of overtaking the U.S. by at least two year (previous estimates had only been as early as 2016). The large caveat on the news is that the projections are based on “Purchasing Power Parity” (PPP), whereby GDP is adjusted based on exchange rates and the relative ability of money to buy similar goods and services in each economy.

China’s economy surpassing that of the United States continues to fuel numerous debates about the bilateral relations between the two countries. The Financial Times has even published a story on the notion of a new “G7” of developing nations (Russia, Brazil, China, India, Mexico, Indonesia, and Turkey), whose collective GDP is now larger that the current G7 (Canada, Germany, Italy, Japan, France, the United Kingdom, and the United States).

China GDP per capita

The underpinning rationale for fear of China’s growing economy, though, is ridiculous. China has a population that is more than four times that of the United States. When China’s economy reaches full employment, adequate education, maximization of human capital, and capital flows freely through the country, the economy should be much larger than the United States. For anyone who cares about poverty alleviation and gains from economic growth and trade, China’s economy is not at all a bad thing, but a great sign marker growth and economic liberalization. China’s GDP per capita still lags behind leading economies, but is quickly catching up. If China continues to grow at current rates, millions more will be lifted to a higher standard of living. I personally hope for further growth in China, for the improvement of lives in China and for the gains that all economic players have from growth and trade.

3 Responses to China’s Economy Has Overtaken the United States, Maybe

  1. I understand this is a big deal and certainly newsworthy, but I am amazed newspapers such as the Vancouver Sun actually are publishing articles stating China now how was the largest economy. I don’t know if people are extremely economically misinformed or love sensationalized information!

  2. This is good news for world wide economic development, but is a poor indicator to use when comparing China and the United States (as you point out). Many other important things such as GDP per capita, income inequality, and the number of people living in poverty would show a different comparison. I would be interested to see how the growth in China is affecting growth across the world, especially in the “new G7” that the article mentions. Unfortunately, the news articles often view these figures as a battle between countries instead of a sign of progress for everyone.

  3. Well, lots of Americans believe the US is still the biggest and baddest, so this ought to be publicized here. In Australia, it’s just another daily news item on China.

    Now Coca-Cola and KFC and GM all know that China is big, lots of foreign direct investment, lots of sales, lots of profits. However that’s on a Purchasing Power Parity basis. On an exchange rate basis China is still smaller than the US – that matters for things such as the ability to fund a modern military-industrial complex. But we shouldn’t discount China too much, as they trade a lot more than the US, relative to the size of their economy, and thus have clout greater than per capita income suggests might be the case. China’s ups (and slowdowns – no downs yet!) affect international commodity prices, and likely even global interest rates.