China has now removed the United States from the top to become the largest economy in the world, and based on the most accurate measure that both the International Monetary Fund and the CIA currently consider the best measure for comparing national economies, the IMF report shows that China’s economy is about one-sixth larger than that of the United States ( $ 24.2 trillion for the first versus $ 20.8 trillion for the second), why don’t we admit the reality? What does this mean?
In his report, which was published by the American National Interest magazine, writer Graham Allison said that the International Monetary Fund presented its global economic forecast for 2020, which provided an overview of the global economy and the challenges ahead, and perhaps the most disturbing fact in this report that Americans do not want to acknowledge or even hear Is that China removed the United States to be at the top of the global economy.
Although this statement is unambiguous and is taken from the most reliable sources, most of the mainstream newspapers – with the exception of The Economist – continue to publish reports that the US economy is in the forefront, so what is going on?
It is clear that measuring the size of a country’s economy is more complex than it appears, and besides collecting data, this also requires setting an appropriate standard. Traditionally, economists have used a market exchange rate measure to calculate GDP.
The US economy is the foundation, reflecting the fact that the United States used to account for roughly half of the global gross domestic product when this method developed in the years following World War II.
As for the economies of other countries, this method collects all the goods and services produced by their economy in their own currency and then converts the result to the US dollar at the current “market exchange rate”.
The Chinese economy in 2020
For the year 2020, the value of all goods and services produced in China is expected to reach 102 trillion yuan, and by converting that to the US dollar (7 yuan per dollar), the Chinese GDP will reach 14.6 trillion dollars compared to 20.8 trillion US GDP.
The writer stated that this comparison assumes that 7 yuan buys in China the same amount of goods that one dollar can buy in the United States, but it is clear that the reality is different. In order to facilitate understanding of this point, The Economist has created the “Big Mac Index.”
According to what this indicator shows, the Chinese consumer can buy a “Big Mac” hamburger in Beijing for 21 yuan, and if he transfers this amount at the current exchange rate, he will get 3 dollars, which will buy him only half of the “Big Mac” in the United States.
In other words, when buying most products, from hamburgers and smartphones to missiles and naval bases, the Chinese get about double the profits for every dollar.
Purchasing power parity
Aware of this fact, the CIA and the International Monetary Fund have developed over the past decade a more appropriate measure for comparing national economies, which is called the “purchasing power parity” scale, says the National Interest.
As the International Monetary Fund report states, the measure of purchasing power parity “eliminates the differences in price levels between economies,” and thus compares national economies in terms of the amount that each country can buy in its own currency at the prices at which it is sold.
While the market exchange rate measure shows how much the Chinese will receive in US prices, the purchasing power parity measure shows how much the Chinese earn in Chinese prices.
In the event that the Chinese convert the yuan into dollars and buy a “Big Mac” sandwich in the United States and take it home on the plane for consumption, then a comparison between the Chinese and American economies using a market exchange rate scale would be appropriate.
Explaining the decision it took to switch from market exchange rate to purchasing power parity (PPP) scale in its annual assessment of national economies, the CIA pointed out that “GDP at the market exchange rate significantly reduces the actual level of China’s production compared to the rest of the world.”
In contrast, “the purchasing power parity measure provides the best available starting point for comparing economic strength and welfare between economies.”
Exchange rates are more volatile
According to the International Monetary Fund, “exchange rates are more volatile, and their use can lead to very large fluctuations in aggregate growth measures even when the growth rates of different countries are stable.”
While the scale most Americans are accustomed to still indicates that the Chinese economy is one-third smaller than the United States, and given the fact that one dollar buys nearly twice as much in China as it does in the United States, the Chinese economy today is one-sixth larger than the economy. American.
The country’s GDP in the real world is the basis for its global power, and given that China has built the largest economy in the world it has replaced the United States as the largest trading partner of nearly every major country.
China has become a global manufacturing workshop for nearly all products, including face masks and other protective gear as it is now in the Coronavirus crisis, adds the National Interest report.
Thanks to the enormous growth in its defense budget, China’s military forces have steadily transformed the position of naval power in potential regional conflicts, especially in Taiwan.
This year, China will overtake the United States in spending on research and development, which will push the United States to “boost R&D” and competitiveness in the future.
In order for the United States to meet the Chinese challenge, Americans must understand the bitter reality, which is that China has already defeated them in the race to become the number one economy in the world.
In 2020, China will be the only major economy to record positive growth, and it is not difficult to predict the consequences that this reality may have on American security.
China’s economic recovery accelerated in the third quarter of the year as consumers dropped caution about the coronavirus, Reuters reported.
Official data revealed today, Monday, that gross domestic product (GDP) grew by 4.9% from July to last September, which is slower than analysts’ expectations in a Reuters poll which indicated 5.2% growth, but faster than the 3.2% growth rate in the second quarter. .
“China’s economy is still on the path of recovery, driven by the recovery of exports, consumer spending is moving in the right direction as well, but it cannot be said that it completely mitigates the Corona virus,” said Yoshikyo Shimamini, chief economist at the Dai-ichi Life Research Institute in Tokyo.
The Office for National Statistics said that the Chinese economy expanded 0.7 percent in the nine months of the year compared to what it was a year ago.