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China to Surpass U.S. As World’s Largest Economy by Year’s End?

May 1, 2014



    China to Surpass U.S. As World’s Largest Economy by Year’s End?

    One of the consistent warnings that we have issued here at FTMDaily is the threat of the rising political power that China will gain from its growing economic dominance. Many nations have economic power, but when that economic power becomes large enough, it translates into political power.

    China has been one of the world’s fastest growing economies for nearly three decades. And now, the World Bank has issued a stinging report that shows China may overtake the U.S. as the world’s largest economy by the end of 2014.

    According to the Economist magazine:

    “Until 1890 China was the world’s largest economy, before America surpassed it. By the end of 2014 China is on track to reclaim its crown.”

    And while the World Bank’s report is true, it is a bit misleading. The report is not strictly based upon total economic output (GDP), but upon purchasing power. When nominal GDP is measured, the U.S. economy is twice that of China. However, when purchasing power parity is measured, China appears to be quickly closing in on the U.S. economy. (If you are interested in learning the difference in methodologies, read this.)

    Regardless, the inevitability of China’s rise to global economic dominance is all but certain. Of course, some will argue that China’s economy is plagued by serious and unsustainable structural problems. (Think: China’s $24 trillion debt bubble.) However, this is what Europeans said about the U.S. economy during its early awkward rise to dominance.

    Additionally, I countered such thinking in a recent article entitled, Get Ready for China 2.0:

    “Don’t buy into the hype… The reports of China’s demise have been greatly exaggerated. The country’s immense economic power is slowly evolving into political power. The country’s aggressive military build-up, its insatiable demand for real assets, like gold and real estate, and its astounding 50%+ personal savings rate, will only serve to strengthen the Chinese economy, even as the U.S. economy continues its slow death spiral.”

    The day that China will overtake the U.S. has been a moving target for years. The IMF had previously predicted that this phenomenon would occur sometime around 2019. More generous OECD figures had forecast that China would surpass the U.S. in 2016.

    To show the futility of the forecast, Goldman Sachs first stated that China’s economy would overtake America’s in 2041… then it was 2026

    Ten years ago, Goldman Sachs said this event was around 40 years away. Today, most economists agree that China’s actual GDP figures will overtake America’s in less than six years. Put simply, the American century is coming to an end. This is no surprise to those who read this website.

    Finally, the Economist has put together a handy online calculator that allows you to predict when China will overtake the U.S. economy. Check it out below.

    Until tomorrow,
    Jerry Robinson


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