For years, the case was discussed. After becoming in 2013 the first commercial power in the world with a trade volume exceeding the United States’, China was set to become the world’s largest economy. The International Monetary Fund (IMF) had indicated in the figures published in October, that it would be in 2014 that this event would happen, although the case had gone relatively unnoticed.
According to the International Monetary Fund (IMF) estimation published on October 7th, the Middle Kingdom would become in 2014 the world’s largest economy, ahead of the United States. Measured in terms of “purchasing power parity” (PPP), which allows to better take into account what can be purchased with local currency of each country, the gross domestic product (GDP) Chinese should reach almost $17,400 billion by December, against $17,170 billion for US GDP.
A small revolution. Even if it was announced, the news is yet passed rather unknown. Perhaps because the calculations in PPP terms, to achieve more accurate comparisons are somewhat technical. Perhaps, according to some economists, because this new hierarchy shakes the very legitimacy of the IMF, still dominated by the influence of the Western World, which is struggling to reform its governance to give more weight to emerging countries.
A new (Re)volution.
Today, the topic is back on news feed, according to a Market Watch’s columnist. Under the title, “It’s official, the US is number 2,” Brett Arends points out a “geopolitical tremor” in the fact that the US is no longer the largest world economic power, position that it held since 1872 after dethroning the United Kingdom.
At the beginning of 2014, the World Bank (WB) had specified the timing of this announcement revolution. While initially, experts from the World Bank had planned the event for 2019, they had said in April that China would ride on top of the podium this year.
According to IMF data, the Chinese gross domestic product (GDP) will rise later this year to $17,632 billion while US GDP will amount to $17 416 billion. These figures are expressed in purchasing power parity (PPP). In 2013, the two countries were “squeezed in” with even a slight lead for the United States. The IMF expects the gap between China and the US will only increase this indicator in the coming years.
According to economists, GDP measured in PPPs is most appropriate to compare the economic performance of nations, because it takes into account what used to purchase local currency of each country from a basket of more than 3 000 properties and services.
If we take as a standard, nominal GDP, calculated according to the official exchange rate, then the US are still far ahead of China. According to IMF figures, US GDP will be at the end of 2014 to $17 416 billion when the Chinese one will be $10 355 billion.
Similarly, if we use as an indicator of the economic power of a country the national wealth per capita, China tumbles in the 89th place of a world ranking dominated by … Qatar.
China cannot be ignored.
For Philippe Waechter, director of economic research at Natixis Asset Management, the fact that China now displays the world’s highest GDP in PPP has to be seen as “the extent of China’s emergence, a reflection of economic power and policy that China had not ten years ago”. According to the economist, “this shows that the US and the developed countries’ economy are no longer up to dominate the world. And that they must reckon with China”. Europe must see how not to be excluded in this new equilibrium dominated by the United States and China, concludes Philippe Waechter.
Thanks to this Fact, China will likely attract more and more foreign enterprises. This attraction will though not be without difficulties, as the Visa procedure are still an administrative challenge. This is where INS Global Consulting can help by providing its expertise to help concretize any commercial projects in China that those enterprises could have.