Tags: Arends | China | economy | US

MarketWatch's Arends: China's Rise to No. 1 Economy 'A Geopolitical Earthquake'

By    |   Thursday, 04 December 2014 10:54 AM

Recent data published by the International Monetary Fund (IMF) showing that China's economy has surpassed the United States as the world's biggest is bad news for our homeland, says MarketWatch columnist Brett Arends.

Measuring GDP using purchasing power parity (PPP), the IMF found that China's GDP will total $17.6 trillion this year, topping $17.4 trillion for the United States.

PPP counts a ton of steel produced in China as equal in value to a ton of steel produced in the United States, erasing the impact of currency fluctuations.

While the United States still beats China when exchange rates are used to compare GDP, "such measures, although they are widely followed, are largely meaningless," Arends writes.

"Does the U.S. economy really shrink if the dollar falls 10 percent on international currency markets?"

The ramifications of China's ascent shouldn't be minimized, he warns. "This is a geopolitical earthquake with a high reading on the Richter scale."

And why is the shift such a big deal?

"Throughout history, political and military power have always depended on economic power," Arends explains. "This will not change anything tomorrow or next week, but it will change almost everything longer term."

To be sure, with the United States holding a population of 316 million compared with 1.357 billion for China, U.S. per capita GDP dwarfs China's — $55,063 to $12,970.

"Looking at per capita income, even by the PPP measure, China is still a relatively poor country," Harvard economist Jeff Frankel writes in an article for Project Syndicate.

"Its per capita income is now about the same as Albania's — in the middle of the distribution of 199 countries."

But China benefits from having the world's biggest population, Frankel says. "Multiplying a middling per capita income by more than 1.3 billion 'capita' yields a big number. The combination of a large population and a medium income gives it economic power."

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Recent data published by the International Monetary Fund (IMF) showing that China's economy has surpassed the United States as the world's biggest is bad news for our homeland, says MarketWatch columnist Brett Arends.
Arends, China, economy, US
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2014-54-04
Thursday, 04 December 2014 10:54 AM
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