This article is from the source 'bbc' and was first published or seen on . It last changed over 40 days ago and won't be checked again for changes.
You can find the current article at its original source at http://www.bbc.co.uk/news/business-27216705
The article has changed 2 times. There is an RSS feed of changes available.
Previous version
1
Next version
Version 0 | Version 1 |
---|---|
Is China about to overtake US as the world's largest economy? | Is China about to overtake US as the world's largest economy? |
(about 7 hours later) | |
When will China become the world's largest economy? | |
It's a question that's been asked a lot in the past few years. | |
With annual GDP growth rates of 9-10% for 30 years, China has quickly become the second largest economy in the world, overtaking all but the United States. | |
Even with China slowing, its economy is still expanding at double the pace of America's. | |
So, thanks to the power of compound growth, growing at 7% means the Chinese economy will double in size in about a decade. That would bring the Chinese economy to the same size as America's is now. | |
With the US growing at only around 3% per annum, speculation as to when China takes the crown is gaining momentum. | |
The latest look at this comes from a leading international statistics organisation. | |
Bear with me, as I walk you though the different ways of looking at this. | |
International comparisons | |
According to the International Comparison Program (ICP), under the authority of the United Nations and hosted by the World Bank, new assessments put China's economy at 87% of the size of the US in 2011. | According to the International Comparison Program (ICP), under the authority of the United Nations and hosted by the World Bank, new assessments put China's economy at 87% of the size of the US in 2011. |
That was three years ago. And in 2005, the same organisation put China at only 43%. | That was three years ago. And in 2005, the same organisation put China at only 43%. |
But, the latest figures from the International Monetary Fund (IMF) in 2012 put China's economic output at about half the size of the US. | But, the latest figures from the International Monetary Fund (IMF) in 2012 put China's economic output at about half the size of the US. |
China's gross domestic product (GDP) in 2012 was $8.2tn (£4.9tn) while the US was $16.2tn. | China's gross domestic product (GDP) in 2012 was $8.2tn (£4.9tn) while the US was $16.2tn. |
The difference is that these are nominal GDP figures, so they are based on exchange rates. | The difference is that these are nominal GDP figures, so they are based on exchange rates. |
The ICP figures make adjustments for how much a dollar buys in different countries, so it is a PPP or purchasing power parity assessment. | The ICP figures make adjustments for how much a dollar buys in different countries, so it is a PPP or purchasing power parity assessment. |
The difference between nominal and PPP-adjusted measures is how adjustments are made for exchange rates. | The difference between nominal and PPP-adjusted measures is how adjustments are made for exchange rates. |
For instance, as these comparisons are in US dollars, then there must be a conversion of the size of an economy into dollars. | For instance, as these comparisons are in US dollars, then there must be a conversion of the size of an economy into dollars. |
But, what if China has an under-valued exchange rate? | But, what if China has an under-valued exchange rate? |
Then, the size of its economy will be mis-judged. So, economists try to adjust for what a dollar buys in different countries by seeking out prices of goods and services. | Then, the size of its economy will be mis-judged. So, economists try to adjust for what a dollar buys in different countries by seeking out prices of goods and services. |
The ICP finds that the PPP-adjusted world GDP is $90.6tn versus $70.3tn when measured by exchange rates in 2011. | The ICP finds that the PPP-adjusted world GDP is $90.6tn versus $70.3tn when measured by exchange rates in 2011. |
Under the IMF data for 2011, world GDP is $70.9tn when measured by exchange rates and $79.4tn when adjusted for PPP. So, the difference isn't as significant as the ICP measures. | Under the IMF data for 2011, world GDP is $70.9tn when measured by exchange rates and $79.4tn when adjusted for PPP. So, the difference isn't as significant as the ICP measures. |
'Complex process' | 'Complex process' |
Using the IMF PPP measures, China's economy is $12.3tn and the US is $16.2tn, so Chinese GDP is about 76% the size of America. | Using the IMF PPP measures, China's economy is $12.3tn and the US is $16.2tn, so Chinese GDP is about 76% the size of America. |
As the ICP points out: "Because of the complexity of the process used to collect the data and calculate the PPPs, it is not possible to directly estimate their margins of error." | As the ICP points out: "Because of the complexity of the process used to collect the data and calculate the PPPs, it is not possible to directly estimate their margins of error." |
In other words, any adjustment for PPP is fraught with difficulty. | In other words, any adjustment for PPP is fraught with difficulty. |
But, they do attempt to measure the purchasing power of a country's income earned by its citizens, which tends to be under-valued using exchange rates for emerging economies. | But, they do attempt to measure the purchasing power of a country's income earned by its citizens, which tends to be under-valued using exchange rates for emerging economies. |
For instance, the ICP finds that middle income countries' share of the world GDP is 48% versus one-third (32%) when compared using just exchange rates. | For instance, the ICP finds that middle income countries' share of the world GDP is 48% versus one-third (32%) when compared using just exchange rates. |
So, China is growing more quickly than the US and has the potential to overtake it. I have seen estimates of that date fluctuate wildly over the years, but many economists see it happening. | So, China is growing more quickly than the US and has the potential to overtake it. I have seen estimates of that date fluctuate wildly over the years, but many economists see it happening. |
Of course, forecasting errors are a subject of another blog. | Of course, forecasting errors are a subject of another blog. |
What ultimately matters more than absolute size is the income earned by the people within a country. | What ultimately matters more than absolute size is the income earned by the people within a country. |
And it will be many more years before per capita GDP in China will overtake that of the US under any of these measures. | And it will be many more years before per capita GDP in China will overtake that of the US under any of these measures. |
Previous version
1
Next version