Bigger is Not Fairer

“New data from the World Bank suggests China could surpass the U.S. as the world’s biggest economy as early as this year, a day that was always meant to arrive after China began its quest for wealth in the 1980s, but it will just veil the reality of its economic weaknesses,”reported TIME’s Michael Schuman

China’s economy is catching up to the U.S.’s much more quickly than anticipated. That’s according to a new report from the International Comparison Program of the World Bank.

The study recalibrates GDP statistics based on updated estimates of “purchasing-power parity” — a measure of what money can actually buy in different economies. In the process, the economy of China comes out far larger than we had previously thought. Its GDP surges to $13.5 trillion in 2011 (the latest year available), compared with the $7.3 trillion calculated using exchange rates. That catapults China’s economy much closer to that of the U.S. — at $15.5 trillion. Forecasting ahead, these figures show that China could overtake America as the world’s largest economy as early as this year.

Before it gets bigger, China has been slowing, however. “China's economy is slowing as it shifts away from growth based on exports and investment in real estate and factories and toward growth fueled by consumer spending,” reported the Associated Press’s Paul Wiseman and Joe McDonald. “The country is also contending with a surge in debt fueled by loans from state-owned banks. Outstanding credit has surged from the equivalent of 130 percent of China's economy in 2008 to 200 percent last year, according to Capital Economics.”

China, meanwhile, has been putting its money to work in the United States. It is easier for Chinese companies to operate in the United States than the reverse – as the recent public offering of Alibaba demonstrated. In reviewing the success of Alibaba, Bloomberg Businessweek reported: “While the Chinese government doesn’t ban U.S. companies from operating in China, it doesn’t make their lives easy. Regulators seem eager to target foreigners for alleged misdeeds. Walmart is a particularly juicy target; the government has penalized the retailer for offenses such as mislabeling fox meat as donkey meat.”

The Chinese economy did show new signs of life in April – boosting both exports and imports after showing a trade deficit unexpectedly in February. China itself seems to be downplaying its growing economic muscle. The  Wall Street Journal’s Paul Magnier blogged: “In a Monday editorial by the state-run Global Times, the paper said the idea that China’s economy tops the world “is not nonsense,” but doesn’t reflect the way most Chinese feel.”

The official Xinhua news agency echoed this sentiment, explaining that PPP is of secondary importance, since China continues to lag far behind the U.S. economically. Its GDP per capita, for instance, is less than one-seventh that of the U.S. “This country has come a long way,” the agency said. “But it remains — undeniably — a developing country with too many fish to fry.”

Fish or no fish, what’s going on here? It appears the “world’s largest economy” headlines have hit a nerve with China’s leadership. With growing employment concerns, rising social stress and the challenge of dealing with the country’s pollution, the new leadership team under President Xi Jinping is trying to focus attention more on the quality of GDP output rather than on growth for its own sake, analysts said.

While it is at it, the Xi government might try leveling the economic playing field.