Old Blogs
February 15, 2013 6:31 PM
China on the move...
Posted by Laura
As we heard in his State of the Union speech, President Obama maintains that our recovery is on track. "We're moving in the right direction, etc." Yet this claim is patently absurd on many levels. Consider this: our economic standing vis a vis China continues to deteriorate. Recent data indicate that in 2012, total U.S. GDP was $15.4 trillion, while total China GDP was $8.2 trillion. But these figures do not accurately calculate what each country can buy with its money. For example, Americans would be more likely to buy bread, while Chinese would be more likely to buy rice. Since rice is cheaper than bread, China's money can go further than ours. To account for differences like this, economists have developed the concept of "purchasing power parity" ("PPP"). By looking at things on a PPP basis, we can take into account relative costs and inflation rates of the countries we are comparing. On a PPP basis, our GDP in 2012 was $15.7 trillion, while China's was $12.4 trillion.

As the Korea Herald reports, Price Waterhouse believes that China will overtake us on a PPP basis by 2017 -- and, as you can see, they have almost caught us on this basis already.

The National Intelligence Council thinks that China will overtake the U.S. on a PPP basis by 2022, and that China will overtake the U.S. using market exchange rates sometime near 2030. The Council believes that "PPP-based measures probably provide better insight into fundamental economic strength." Check out at footnote "a" on page 15 of the attached report.
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