World Bank: China Set to Pass U.S. Economy This Year

The big headlines in international news came following the release April 30 of an International Comparison Program report that suggests China’s economy will overtake the U.S. and India will rise to number three over Japan.

Of course, as with any report of this magnitude, you have to take the whole situation into perspective. The report relies heavily on a variable called purchasing power parity (PPP) that shows the power of the Renminbi in China becoming more powerful than the U.S. Dollar in the U.S.

Simply put, getting a hair cut in Beijing is far cheaper than the same quality hair cut in New York City. That’s a simple way of looking at it. The Financial Times did a great video explaining the report.

Now: This news doesn’t necessarily mean that China is “rich” per se; in fact, when it comes to standard of living or quality of life, China ranks around 100th in the world. The report just compares relative purchasing power and everybody knows there are far more factors to an economy than one variable. Still, it shows the massive amount of growth China has seen in the past 20 or 30 years.

That said, size isn’t everything. In a report by the McKinsey Global Institute, China ranks rather low when it comes to a “connectedness index” in the global economy. China is at 25 while Germany sits at 1 and the U.S. at 3. Read that report here.

In the end, it’s all about perspective. If you talked about this topic with an everyday Chinese citizen — or laobaixing 老百姓 — they would tell you that the economists are liars.

The reality is that life in China can be tough for the average citizen, but it’s getting better, and whether it’s “China No. 1” or “U.S.A. No. 1,” the important thing is that we continue to do business together harmoniously.

Posted in News Brief, World Economy and tagged , , , .