Despite Some Headlines, China’s Economy Still Not as Big as the U.S.’s

Whose economy is number one – the U.S. or the P.R.C? (Cindy Yuan/Flickr)
Whose economy is number one – the U.S. or the P.R.C? (Cindy Yuan/Flickr)

So is China’s economy really bigger than the U.S.’s as some headlines and pundits this week would like you to believe?

The headlines in question are based on the International Monetary Fund saying China’s economy is worth $17.6 trillion, just above the U.S.’s $17.4 trillion.

But the issue is that it’s all based on a set of measurements, the gross domestic product (GDP) and the figures they use are not solid.

China watchers say when it comes to facts, figures and China, some sobriety needs to be shown and most agree that the Chinese overestimate their GDP.

Global business news site Quartz have done a decent job in pointing out the inaccuracies in the idea that China’s economy is the world’s strongest. For brevity here’s their argument summarized–

  • The World Bank’s use of purchasing power parity to measure GDP is flawed because of the base data used for calculations is incorrect due to the fact that China is not properly recognizing its bad debt.

China’s banking system is notoriously opaque and debts are often deferred which means any losses are not properly taken into account. This greatly detracts from the GDP points that have been used to say that China’s economy now trumps the U.S’s.

To finish up, Shobhana Chandra, writing for Bloomberg, sums it up well in the opening par of her article: “Call it another false alarm in the China-overtaking-the-U.S. saga. Notwithstanding the latest estimates from the International Monetary Fund, the U.S., the world’s largest economy is still, well, numero uno.”

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