What happened to China overtaking the US?

Ben Chu

Remember all that excited chatter about China overtaking the US as the world’s biggest economy before the end of the decade (see here and here and here for some representative examples) ?

Well, checking the International Monetary Fund’s latest forecasts I noticed that the great oriental sorpasso has, apparently, been put on hold.

Here’s the IMF’s forecast from April 2013:

china1 What happened to China overtaking the US?

A year ago, the Fund expected China’s economy to be bigger by 2017.

The dollar figures for China’s GDP are, by the way, adjusted for the higher purchasing power (known as Purchasing Power Parity or PPP) of the Chinese currency which is the basis on which all these striking claims about China’s progress relative to America are based.

Anyway, here’s the latest IMF forecasts from October 2013:

imf2 What happened to China overtaking the US?

So no overtake over the forecast period. This reflects China’s growth slowdown in 2013 relative to previous IMF forecasts.

But, of course, as I argued in my recent book Chinese Whispers, such comparisons are rather spurious in any case, given China’s larger population (1.35 billion vs 314 million in America) What matters when comparing living standards is GDP per capita.

And here, as we can see from this chart using the IMF’s latest data, the gap is enormous was never going to be closed over the decade:

imf3 What happened to China overtaking the US?

But are we talking about a comparison of raw economic power rather than living standards?

If so, it makes no sense to adjust for purchasing power. Here’s the latest forecast based on current dollar GDP. Again, no overtake was ever in sight this decade:

IMF4 What happened to China overtaking the US?

All this is, of course, based on forecasts. Those forecasts will inevitably be wrong, both about the Chinese and American economies. And it’s possible that China will, ultimately, be a bigger economy than the US – indeed we should hope so because this will mean the living standards of the average Chinese will be catching up with the average American.

But, as we wait and see, it’s rather revealing to note how forecasts of China overtaking the US in the near future get us excited and provoke a torrent of commentary, while revisions to those forecasts, which unravel that story, tend to pass us by.

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