Sunday October 20, 2019

CHINA TO BE #1 ECONOMY

May 9, 2014

China could become the world’s number one economy later this year, according to new data released by the World Bank. The data measures Purchasing Power Parity (PPP) – a value used by economists to measure the buying power of a nation’s economy and currency. Using this calculation, China’s economy is expected to grow 24 percent between 2011 and 2014, compared to 7.6 percent growth for the U.S., meaning China’s total economic size could exceed the United States’ by the end of the year. Already, in 2011, China’s economy was worth $13.5 trillion in terms of PPP – 90% of the size of the United States’ $15.5 trillion economy.

PPP is one way economists measure a nation’s economic strength. The advantage of economic data set in terms of PPP is that it provides a useful comparison of the costs of living across countries. PPP is used in the Economist’s famous Big Mac Index that compares prices of Big Macs in McDonalds stores around the world to show which countries’ currencies are over or under-valued with respect to the US dollar.  However, because PPP does not account for differences in the quality of goods and services, market access, and so forth, it does not present a complete picture about countries’ standards of living.

Nominal GDP is another measure economists use to demonstrate the size of a nation’s economy. Nominal GDP provides the monetary value of final goods and services produced in a nation in a given year. When calculated using nominal GDP, the U.S. economy was nearly twice as big as China’s in 2011 ($15.5 trillion v. $7.3 trillion). Economists expect China to surpass the US in nominal GDP in 2020. Currently, the US makes up 17.1% of the world’s total GDP (~$80 trillion). China’s share is 14.9%.

Whether and when China will overtake the US economy depends on economic growth rates, price levels in each country, and the exchange rate between them. If, for example, China’s prices rise faster than America’s, and its currency, the Renminbi, does not fall in value, then China’s economy will be worth more, relative to America’s, and it will overtake the US sooner. Since 2011, prices in China, for everything from homes to education, have risen faster than in the United States. China has also gradually strengthened the value of the Renminbi,  meaning that China could take the top spot sooner than expected.

When China passed Japan in terms of nominal GDP in 2010, Chinese media sources extensively covered the event. However, when China overtook Japan in terms of PPP ten years earlier, the media was largely silent. The same has happened with the new World Bank data and its implications. This has led journalists to speculate that Beijing does not want the increased international pressure that would come with being the number one economy. China still benefits from programs aimed at developing countries, and if it were to become the world’s #1 economy, it may be pressured to ‘graduate’ from these programs and contribute more to projects in other developing nations. In response to the new data, Chinese media and individual bloggers have chosen instead to point out the problems that remain with China’s economic growth model, including the wealth gap and environmental issues. Despite its large aggregate economic strength, China continues to rank low in terms of per capita GDP (99th, compared to America’s 12th place).

Correcting the problems with China’s economic growth model has been a priority for President Xi Jinping. Earlier this year, Premier Li Keqiang unveiled China’s plan to focus more attention on the quality of GDP output than on growth for its own sake. Denying the new data’s importance could come at a cost to China’s  pursuit of global leadership, though. China and other developing nations that come out stronger in terms of new PPP data could use the results to pressure the US and developed nations to cede more decision-making power at the International Monetary Fund and similar organizations.

China’s economic strength has contributed to its citizens’ optimism about their ability to achieve the ‘China dream’. Like the ‘American dream’, China has used the term to describe the nation’s hopes about future prosperity and access to opportunities. Over 70% of Chinese citizens surveyed said achieving the Chinese dream is important to them. 65% of Americans also believe in the continued importance of the American dream to their future plans. However, for the average citizen in both countries, China’s ascent to the world’s #1 economy in terms of PPP data, will not have any noticeable effects on their lifestyles.

For more information on China’s economy, please see the following news articles:

The Diplomat“China Doesn’t Want to Be Number One”

The Diplomat“China to Be World’s Largest Economy in 2014?”

Economist“Catching the Eagle”

Global Times“Don’t Read Too Much Into PPP Ranking”

The New York Times“By One Measure, China Set to Become Largest Economy”

The Wall Street Journal “China Doesn’t Want Its Economy to Be #1″

The Wall Street Journal“The Chinese Dream vs. the American Dream, in 4 Charts”

XinhuaChina facing long way from world’s No.1 economy”

For Chinese language news sources, please see the following:

人民网“世界银行:2011年中国经济规模接近美国的九成”

新化网“中国将成全球最大经济体?别太当真”

Compiled and edited by Amanda Conklin