How China beats US economy by a trillion dollar every year

Since 2014 when China first overtook the US economy by GDP purchasing power parity (PPP), China has been leaving the US economy behind by nearly a trillion dollar every year.

With $23.2 trillion in size by PPP in 2017, China is now $3.8 trillion ahead of the US, currently at $19.4 trillion, according to World Data Atlas which monitors the global economies through a variety of indicators.

The US had been the world’s largest economy for over 140 years. In 1872, the US had deprived Britain, then the world’s largest economy, of this title. In 2014, China did the same for the US.

In terms of GDP Nominal, the US is still the largest economy in the world, with 2017 GDP at $19.4 trillion, compared with China’s $11.8 trillion.

According to economists, GDP purchasing-power-parity (PPP) compares different countries' currencies through a market ‘basket of goods’ approach. Two currencies are in PPP when a market basket of goods (taking into account the exchange rate) is priced the same in both countries. For example, what goods 10 dollars can buy in the US, in China, or in Pakistan? Or, how much does a McDonald’s burger cost in the US versus its price in China?

Comparable developed countries rank higher in GDP Nominal while comparable developing countries rank higher in GDP PPP because prices of goods are cheaper in developing countries as a US dollar, for example, can buy more in China than in the US.

In 1980, the US GDP PPP was $2.9 trillion, while China was at merely $306 billion.

In 2015, China’s exports to the world accounted for $2.3 trillion. In 1985, the Chinese exports were only $27 billion, a fraction of today’s exports.

Another noteworthy example is China’s head-on war with extreme poverty. In 1981, 88% of Chinese population was extremely poor. Last year, only 1% Chinese population was under extreme poverty, according to a University of Oxford study.

Other recent indicators of China’s economic rise:

According to the Forbes 2016 ranking of world’s biggest public companies, four of world’s six biggest public companies are Chinese. Their ranking with market capitalisation:

1 ICBC $198 billion

2 China Construction Bank $163 billion

3 Agricultural Bank of China $153 billion

6 Bank of China $143 billion

Similarly, the new Fortune Global 500 ranking shows a shift in the world’s business landscape. Three of top four Fortune-500 firms are now Chinese.

2 State Grid

3 China National Petroleum

4 Sinopec Group

Similarly, four of the world’s 10 largest employers in 2016 were Chinese organisations. Their ranking and number of employees:

2 PLA 2.3 million

6 China National Petroleum Corporation 1.6 million

7 State Grid Corporation of China 1.5 million

10 Foxconn 1.2 million

Another measure: Half of world’s top 20 container ports in 2017 are in China, according to Chinese Academy of Sciences (CAS) projections. Shanghai is world’s biggest container port, with 38.5 million TEUs.

China’s future economic status: With nearly $60 trillion in size, China will continue to be the world’s largest economy by GDP PPP in 2050, according to PwC, the world’s largest accounting firm.

The other measure through which economies are measured is GDP Nominal. China’s GDP stood at $12 trillion in 2017. By this amount, China is world’s second largest economy after the US.

However, by GDP Nominal as well, China is set to become the world’s largest economy within this decade.

According to a study by Citigroup Inc, Number 30 in Fortune 500, China’s nominal GDP will reach $28 trillion by 2025 compared with $26 trillion for the US. This is based on anticipated growth rates and a gradual appreciation of the yuan to 5 per dollar from 6.8 now, says Citi.

According to Goldman Sachs, the world’s largest investment bank, China’s GDP will be at $52.6 trillion in 2050, nearly double the size of the US.

In years to come, 2017 could be viewed as a tipping point for global asset allocation, says a Bloomberg report this week. It says investors could send $3.36 trillions of new capital into China from abroad by 2025. (Wali Zahid is a longtime China watcher and a Pakistan futurist. An award-winning journalist, he writes on issues of significance to Pakistan and CPEC & BRI. Blog: walizahid.com.)