Home > Uncategorized > China is the world’s largest economy: Get over it

China is the world’s largest economy: Get over it

from Dean Baker

It is common for politicians and pundit types to speculate on when or whether China’s economy will pass the US economy as the world’s largest. The latest episode to cross my path was a column by David Wallace in the New York Times.

There is little reason for this sort of speculation. China is already the world’s largest economy, its economy is more than 20 percent larger than the US economy, according to the IMF. Furthermore, it is growing considerably more rapidly (assuming they don’t continue their zero COVID-19 policy forever), so it is projected to be more than a third larger than the US economy by the end of the decade.

Here’s the picture.

Source: International Monetary Fund.

Many people misunderstand the relative sizes of the two economies because they rely on exchange rate measures of GDP. These measures a country’s GDP and then compare it to the US GDP by converting its currency into dollars at the current exchange rate.

Most economists argue that a purchasing power parity measure of GDP is superior. This applies a common set of prices to the goods and services produced in different countries. Any measure like this will always be inaccurate, but in principle it is comparing apples to apples. We assume that tables sell for $500 everywhere, that shoes sell for $60, etc.

Using the purchasing power parity measure, China’s GDP passed the US GDP around 2014. Since then it has made the gap larger.

Some folks seem to find it hard to accept that the US does not have the world’s largest economy, but such is life. Donald Trump lost the election and the US is number 2.

  1. Rob
    September 16, 2022 at 11:20 am

    Three points- their GDP per capita can’t break the middle income trap; their Gini coefficient continues to worsen; their economic data is produced by the CCP and as such is as useful as a chocolate teapot. Other then that!

    • postkeynesian
      September 20, 2022 at 3:04 am

      Really China is more rich, and have a lot of cities that US nope. In US you don´t have public service goods, but their economic data is produced by the State and as such is as useful as a chocolate teapot.

  2. Kenocc
    September 23, 2022 at 10:04 am

    There are other considerations, however. First. China is one of the most politically, religiously, and economically repressive countries in the world. It expanded its economy using all these forms of repression. Second, much of this economic expansion is based on what can only be called lies and deceitful “deals” with international corporations, many of them American that provided little benefit for large portions of the Chinese population. After all, providing Chinese workers a 50% or even 60% increase over “slave wages” is really no improvement at all. Finally, there is the obvious. China is an autocratic state, that will use its increased wealth to spread authoritarian rule and stifle democracy around the world. This alone demands that democratic nations do all in their power to keep China as poor as possible. Even if this temporarily harms some of her people.

    And none of this is a forecast. Trade with the west, in large part cheered on by the USA has allowed China to create a whole new level of wealth inside China, including what could reasonably be labeled a “middle class” while the Chinese Communist Party (CCP) retains absolute economic, political, and technological control over all people and events inside China as well as many other nations in the region. The money from such trade has also made it possible for China to construct the largest army and air force in the world and to deploy many new weapons, including aircraft carriers and strategic bombers and missiles. China has also used some of this new wealth to bribe or extort other Asian nations to a path favored by China. None of this is new, of course. Both the USA and USSR engaged in similar actions in the past. Also, China’s new wealth and weapons, along with the USA’s internal strife and involvement recently with Ukraine have emboldened China regarding the return of Taiwan to the CCP’s control. The West spurred on by the neoliberals in the USA and the UK have been foolish in the past in believing that “free trade” would somehow change China into a capitalist nation. That has not and will not happen. It makes the West and particularly the USA and UK doubly foolish to continue to support this position now. It can only lead to disaster and perhaps even war between China and the West. A good move for munitions manufacturers but no one else.

    Thus far China has made a fool out of the west, particularly the USA. Mainly due to the greed of western, particularly USA corporations and politicians. It seems at this point it is unlikely Western or USA diplomacy can fix any of this.

  3. September 23, 2022 at 2:17 pm

    Reblogged this on Calculus of Decay .

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