the size of china

Image: Tianwang Xiao
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By DEAN BAKER*

Claiming that the US is the biggest economy in the world is good for the ego of those who claim it, but that is no longer true.

It is normal for politicians, reporters and columnists to refer to the United States as the largest economy in the world and China as the second largest. I suppose that statement is good for these people's egos, but that's no longer true. Measured by purchasing power parity, China's economy overtook the US in 2014 and is now about 25% larger than it.[1] The IMF projects that China's economy will be nearly 40% larger by 2028, the latest year in its projections.

The measurement commonly used by US apologists is based on the exchange rate. This is how each country's GDP is measured in its own currency and then converted into dollars at the current exchange rate. By that measure, the US economy is still more than a third larger than China's economy. Now, this measure reflects not only production, but the strength of the dollar as world money.

Economists generally prefer the purchasing power parity measure for most purposes. The exchange rate measure fluctuates enormously, as exchange rates can easily change 10 or 15 percent in a year. Exchange rates can also be somewhat arbitrary, as they are affected by countries' decisions to try to control the value of their currency in international money markets.

In contrast, the purchasing power parity measure applies a common set of prices to all items a country produces in a year. In effect, this means assuming that a car, a television set, a college education, etc. cost the same in all countries. Applying common prices is a difficult task, goods and services vary substantially between countries, which makes it difficult to apply a single price. As a result, purchasing power parity measures are clearly very imprecise.

However, it is clear that this is the measure that matters most for most purposes. If we want to know how much goods and services a country produces in a year, we need to use the same set of prices. By that measure, there is no doubt that China's economy is considerably larger than the US economy and, moreover, has been growing much faster.

Just to be clear, this does not mean that the Chinese are, on average, wealthier than Americans. China has nearly four times the population of the US. So, per person, the US is still more than three times richer than China. But it shouldn't come as a shock to learn that a country with more than 1,4 billion people has a larger economy than a country with 330 million.

For people who need more data to better convince themselves, we can make comparisons of several specific items. We can start with automobile production, a standard measure of industrial production.

Last year, China produced over 27,0 million cars, but the United States produced just under 10,1 million. (China also leads the world by far in the production and use of electric cars.) US-made cars are undoubtedly bigger and perhaps better on average, but they would have to be much better to make up the difference.

To take a more old-fashioned measure, China produced over 1.030 million metric tons of steel in 2021. The United States produced less than 90 million metric tons.

China generated 8.540.000 gigawatt hours of electricity in 2021, nearly double the 4.380.000 gigawatt hours generated in the United States. The difference is even greater if we look at the production of solar and wind energy. China has 307.000 megawatt hours of installed solar capacity, compared to 97.000 in the United States. China has 366.000 megawatt hours of installed wind capacity versus 141.000 in the United States.

We can look at some more modern measures. China has 1 billion Internet users. The United States has 311 million. China has 975 million smartphone users, the United States has 276 million. In 2016, China graduated 4,7 million students with STEM degrees (Science, Technology, Engineering and Mathematics). In the US, the number was 330.000 in the same year. The definitions for STEM degrees aren't the same, so the numbers aren't strictly comparable, but it would be hard to argue that the US number is any higher. And the number has almost certainly shifted more in China's favor over the past seven years.

In terms of impact on the world economy, China accounted for 14,7 percent of goods exports in 2020. The United States accounted for 8,1 percent. In the first nine months of last year, China accounted for US$90 billion in foreign direct investment. This compares to $66 billion for the United States.

We can pile on more statistics, but category after category, China outperforms the United States – and often by a very large margin. If people want to put on their wizard hats and insist that the US is still the biggest economy in the world, they can, but the verifiable and inescapable fact is that Donald Trump lost the 2020 election and that China's economy is greater than that of the United States.

And size matters. It's not just a matter of boasting. China is clearly an international competitor on economic, military and diplomatic levels. A lot of people want to take a confrontational approach to China, with the idea that we can isolate the country and spend it militarily, as we probably did with the Soviet Union.

At its height, the Soviet economy was approximately 60% the size of the US economy; Why, China's economy is already 25% bigger. And that difference is rapidly expanding. China is also much more integrated into the world economy than the Soviet Union ever was. That makes the prospect of isolating China that much more difficult.

In practice, it doesn't matter whether we like China or not. It is there before our stunned eyes and it is not about to disappear. We Americans must find ways to deal with China that do not lead to military conflict.

Ideally, we would find areas where we could cooperate, for example sharing technology to address climate change and deal with pandemics and other health threats. But if one wants to go the New Cold War route, one should at least be aware of the numbers. This, ladies and gentlemen, will not be your grandfather's Cold War.

*Dean Baker is a senior economist at the Center for Economic and Policy Research in Washington, DC.

Translation: Eleutério FS Prado.

Originally published on the portal counter punch.

Notes


[1] I included Hong Kong and Macao in this calculation, as both are now effectively part of China.


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