No Virginia, China Is NOT the Biggest Economy In the World


Call it another false alarm in the China-overtaking-the-U.S. saga. Notwithstanding the latest estimates from the International Monetary Fund, the U.S., the world’s largest economy is still, well, numero uno.

China’s gross domestic product will climb to $17.6 trillion this year, while the U.S. grows to $17.4 trillion, IMF projections showed yesterday. One major caveat: the comparison is based on purchasing power parity, which uses exchange rates that adjust for price differences of the same goods between nations.

“The U.S. remains the biggest by the more common, more widely accepted and in our view, more useful measure,” said David Hensley, JPMorgan Chase & Co.’s director of global economic coordination in New York. As for PPP, “it’s not quite the real thing.”

And of course, even if we pretend for a moment that the Chinese economy is in fact bigger than the American economy, that would still not be the end of the story. The per capita income in the United States is ten times bigger than that of China. If the Chinese economy slows even a bit from its gangbusters rate–a gangbusters rate that exists because in so many ways, the Chinese economy has nowhere to go but up–it is in big trouble and so are the Chinese people as a whole. And then there are the demographic problems that are the consequence of China’s infamous one-child policy. China is aging remarkably fast as a country, and demographic disasters do not economic powerhouses make.

So, the status quo has not changed. The United States remains the largest economic power in the world. And even if/when the Chinese economy overtakes the American economy in terms of size, it will still likely not overtake the American economy in terms of the ability to deliver prosperity.

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