Opinion

China overtakes US as biggest economy?

(Xinhua)
Updated: 2011-01-20 09:40

BEIJING - Though China is yet to release its annual economic data, a US economist has already crowned China as the world's biggest economy in terms of purchasing power parity (PPP).

The "generous" No 1 title given by Arvind Subramanian, senior fellow at the Peterson Institute for International Economics in Washington, has drawn suspicion from Chinese scholars, who say such remarks are "pure fiction."

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Chen Fengying, director of the World Economy Institute of China's Institute of Contemporary International Relations, said the title was an honor unfit for China.

The size of China's economy in 2010 was $14.8 trillion, compared with $14.6 trillion for the United States, when accounting for the countries' differing costs of living, Subramanian wrote in a note published on January 13, a week before President Hu Jintao visits Washington.

Purchasing power parity calculates gross domestic product (GDP) using exchange rates and takes into account price differences of the same goods between nations.

However, statistics from the International Monetary Fund (IMF) and the World Bank (WB) tell another story to that of Subramanian's.

The IMF, for instance, estimates gross domestic product, in PPP terms, in the United States was about $14.6 trillion in 2010, while China's was $10.1 trillion. The World Bank estimates a similar gap.

That's why David Leonhardt, an economics journalist with the New York Times, said on January 14 in his article "On the size of China's Economy, a dissenter" that "I was careful to say that, by most measures, the United States still has by far the largest economy in the world."

Ranjit Lall, the Financial Times' 2010 Peter Martin Fellow and also a senior statistician, said on January 14 in his article "Has China already overtaken the US?" that "one might wonder, if this were the case, why Chinese policymakers have made no effort whatsoever to correct the IMF's statisticians."

Subramanian argued that China raised no concerns about the IMF's price data because a revision would lead to more pressure on China to appreciate its currency against the dollar, according to the article.

Theoretically, the PPP model has flaws, such as it takes traded goods into consideration while omitting non-traded ones, it neglects the influence of trade costs and trade barriers, and it overlooks the impact of international capital flow on exchange rate, analysts say.

By framing China as the world economic bellwether, Subramanian aims to cook up an excuse to add pressure on Beijing for currency appreciation, said Yuan Gangming, research fellow with the Institute of Economics of the Chinese Academy of Social Sciences (CASS).

Subramanian's conclusion is far from scientific and his claim "highly overestimates the Chinese Yuan purchasing power," said Chen Fengying.

No wonder, David Leonhardt said Arvind Subramanian "remains very much in the minority."

"Even if China's economy surpasses the US by economic scale one day, in terms of total economic scale, there is a long way to go before China becomes as strong as the US," Chen said.

Concerning GDP per capita, IMF figures show that the average American is six times better off than the average Chinese person, however Subramanian thinks the difference is only four times, according to Ranjit Lall's article.

Subramanian's conclusion aims to make China bear responsibilities far beyond its ability, Chen said.

Chen also downplayed a poll by the Washington-based Pew Research Center for the People and the Press, which revealed last week some 47 percent surveyed Americans said China is the leading economic power with 31 percent naming the US, saying that the majority of Americans do not know China in depth, and their judgments are still influenced by both countries' performances during the global economic downturn.