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By Global Public Square staff
This month, headlines declared that China could eclipse the United States as the world's biggest economy by as early as this year. But before you start lamenting the end of American dominance – the U.S's 125-year run as the world's economic leader – listen to us. America is still number one. It will be for a while. And, as it turns out, China is OK with that.
Let us explain.
A new report from the World Bank's International Comparison Program says that China is catching up to the U.S. faster than anticipated. In 2005, the ICP estimated China's economy was 43 percent the size of America's. But their latest report, which uses 2011 data, puts China's GDP at $13.5 trillion. That accounts for 87 percent of the U.S. economy, which is $15.5 trillion.
Now, given that China's economy is growing 3 times as fast, it is fair to project that China will surpass the U.S. by year end. So, are we bracing ourselves for a big power shift from West to East, for a new Pacific era?
Well, not exactly. The International Comparison Program based their rankings on a measure called purchasing power parity. PPP, as it's called, estimates the real cost of living – in other words, what money can actually buy you in each country, not how much money you have.
For instance, on average, you can buy a loaf of white bread at a market in China for $1.66. But the same would cost you about $2.39 in the United States. A Pack of Marlboro cigarettes sets you back $2.40 cents in China, but $6 in America. And utilities for an apartment in China could cost one third of a comparably sized apartment in the United States.
But using PPP as the sole metric can be problematic. While some goods and services may be cheaper in the developing world, many things cost the same whether you are in Beijing, Washington, D.C., or New Delhi.
The Wall Street Journal's Tom Wright, perhaps, puts it best: "China can't buy missiles and ships and iPhones and German cars in PPP currency. They have to pay at prevailing exchange rates."
National power is best compared on the basis of the standard measure – market exchange rates. And by that measure, the U.S. economy is still nearly twice the size of China's. In fact, by these standards, the American economy is larger than China and Japan's combined.
So, China won't regain its spot as the world's biggest economy for some time.
We say regain, by the way, because by some measures China was actually the world's largest economy as recently as 1890. Then the Industrial Revolution propelled the United States to the top ranking. Now, what that shows you is that it is possible to be very poor and technologically backward, as China was without a doubt for most of the 19th century, and still, because of sheer size, you can be counted as the world's biggest economy.
What's more, China doesn't even want to be number one right now. China's National Bureau of Statistics has expressed reservations about the World Bank's findings.
Why? Maybe because China wants to avoid the spotlight and responsibilities that come with being a rich country. The Communist Party doesn’t want to make any concessions on trade, or climate change, or any other areas as rich nations are called on to do.
Also, keep in mind that China is still a relatively poor country. When you look at per capita GDP, China doesn't rank first, second, or even 30th. On that criteria, China is behind Peru.