Measuring gross domestic product using purchasing power parity (PPPs) the International Monetary Fund now estimates China’s GDP at $17.6tn, against the US’s $17.4tn.
PPPs are an attempt – far from perfect – to account for varying price levels between countries, particularly in goods and services not open to international competition. PPPs make a big difference. According to the IMF, China’s GDP this year measured in simple dollars, making no adjustment for relative prices, is $10.4tn.
Notwithstanding any measurement problems, China’s rise has been remarkable.
In 1980 Chinese economic output was a tenth of the US. Four decades on, the IMF estimates that China’s economy will be 20 per cent larger than the US.
China’s average growth in GDP from 1980 to this year has been an astonishing 9.8 per cent per year, compared with 2.7 per cent in the US. Sustained annual growth of 10 per cent implies that an economy will double in size roughly every seven years
Two caveats: Firstly, China’s economy may now be the largest in the world but it is far from the richest. GDP per head is still less than a quarter of US levels.
Secondly, in a long-run historical perspective, China’s rise has merely restored the status quo ante. Angus Maddison, doyen of economic historians, estimated that China was the world’s largest economy as late as 1870, with India close behind. The 150-year dominance of Europe and the US has been the exception.
