China has overtaken US economy, So says a top American economist

Sunday January 10 2016

General Motors (GM) Buick cars being assembled

General Motors (GM) Buick cars being assembled at Wuhan auto plant in Wuhan, central China's Hubei province. China has already overtaken the US as the world’s largest economy, and without anybody noticing. PHOTO | AFP 

By GITAU WARIGI
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The other day, I was reading an intriguing article that left me very surprised.

It stated unequivocally that China has already overtaken the US as the world’s largest economy, and without anybody noticing.

The article, titled 'The Chinese Century,' was published in 2015 in Vanity Fair magazine.

It was authored by the eminent American economist Joseph Stiglitz. He used to be the chief economist at the World Bank. He won the Nobel Prize for Economics in 2001.

He is a guy one takes very seriously when he talks economics.

Comparing the GDPs of different countries is a complicated task, as Prof Stiglitz noted at the outset.

Broadly, two standard measures are used: Currency exchange rates and purchasing-power-parities (PPP).

Going by PPP, which compares incomes in various countries, the learned professor determined China is now ahead of everybody.

He actually suggested the Asian giant acquired the Number One ranking towards the end of 2014, much sooner than anybody expected.

The World Bank has an obscure unit called the International Comparison Programme which does GDP assessments.

It met in early 2014 and, digging into the numbers, came up with the new rankings.

QUIETLY RELEASED

They were quietly released some months later, indicating that China would be entering 2015 as the global economic top dog.

Oddly, very little public attention was paid to this momentous information.

Prof Stiglitz thinks he understands why. America, the superpower China was supposed to have overtaken economically, enjoys its status as No 1 and wants to keep things that way.

It would be a huge psychological jolt to be told in the face that it has been surpassed in economic size by a country which only three decades ago was spoken of as a Third World power.

And there would be consequences, not least for China itself, with such loss of self-esteem by the US.

One should recall the frenzied American reaction when the Soviet Union became the first country in history to launch a human being into space in 1961.

America put everything it had to ensure it put its own man on the moon in 1969.

As Prof Stiglitz acknowledges, China understands this mind-set quite well. Interestingly, it has done everything to downplay the notion that its economy is now the largest.

JINGOISTIC BACKLASH

The last thing China wants is a jingoist backlash from a wounded American ego.

Make no mistake, America still leads in other measures that matter.

Its $17 trillion economy is still top on currency exchange rate assessments.

Plus the dollar remains the No 1 global currency. But the crux of its power is its military pre-eminence.

Its defence spending is more than the next top 10 nations combined – China included.

That is not all. America’s per capita income – given its 320 million in population – dwarfs that of China’s 1.3 billion people.

What’s more, the non-military “soft power” it wields – the mix of its pervasive Hollywood movies, the trend-setting music, the top-notch universities and the cutting-edge IT products of its ‘Silicon Valley’ – is without equal in its cultural and economic influence all over the whole world.

That is what China is up against even as it steps onto the pedestal of the top economy.

MIDDLE CLASS

And it knows it. China, however, has managed, in a startling span of only 20 years, to lift more of its poor people into the middle class than anything seen before.

It now has a bigger middle class, by numbers, than America’s entire population.

China is presently the biggest trading entity of all. It is the world’s largest exporter of goods by value.

When its commodity imports dipped last year due to a growth slowdown, the aftershocks were felt across the world, more so in Africa which relies on commodity exports.

It is now dawning on America that the economic power balance has shifted. Last year it allowed the World Bank, which it controls, to increase China’s voting rights in the body by virtue of Beijing’s economic weight.

The IMF also agreed to have China’s currency, the renminbi, as one among its basket of “hard” currencies. China’s launch of the well-funded Asia Infrastructure Investment Bank – effectively a rival to the World Bank – had a lot to do with this climb-down.

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