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May 2011
A Wake-up Call: “China’s Economy Surpasses United States in 2016”
By John Paul Galles

     The International Monetary Fund (IMF) has predicted that the Chinese economy will surpass the U.S. in 2016. While many are debating the validity of that prediction, that shocking statement should be a wake-up call to voters, politicians and policy makers that China’s economic power is increasing while we are struggling to realize an economic recovery in the United States.

     To be sure, there are many different calculations to compare the economies of the United States and China. The IMF numbers come from a comparison of “purchasing power parity,” which compares what people earn and spend in real terms in their domestic economies.

     Using this measurement, the Chinese economy will grow from $11.2 trillion this year to $19 trillion in 2016. During the same period, the U.S. economy will grow from $15.2 trillion to $18.8 trillion. As a result, the U.S. share of world output would diminish to 17.7 percent, while the Chinese share would reach 18 percent.

     Those who challenge this calculation suggest that the IMF is miscounting, and that these numbers are meaningless in real terms. The IMF numbers are figured using current exchange rates. And because China artificially undervalues its currency with its massive intervention in currency markets, they allege the Chinese exchange rates are phony.

     There are many ways to compare our two economies. Chinese per capita income in 2016 will still be only about 10 percent of what it is in the U. S. At the same time, most Chinese share tiny apartments or dormitories, make minimum wage with no benefits, and work in companies that pollute the skies and dump waste into the water.

     The value of this comparison comes in recognizing that economic competition is now global. We can no longer simply take for granted that our free market system will keep us on top economically.

     We are in a world economy with many competitors, and some of those competitors have national governments that develop significant economic plans, manipulate their currencies, control profits and limit economic freedom. Recently announced Chinese objectives are to move 500 million Chinese citizens into the middle class over the next 20 years. That is a considerable undertaking.

     While free market capitalism will likely win out over the long term as world markets distribute production and income, the U.S. will experience considerable anguish. Free-trade agreements alone will not cause other countries to adopt similar standards for environmental protection and labor standards or currency policies. Our circumstances cannot be taken for granted.

     Most people are not ready to cave in to these numbers. Many experts from all perspectives suggest that China will not surpass the United States for decades. Only the most bearish conclude that this might happen in the mid-2020s.

     However, we do need to understand how the world is changing and how Americans can prosper in the midst of that change. Our economic successes have not only come from our creativity and our entrepreneurialism, but also from the infrastructure that we have built since World War II.

     Our educational systems, our interstate highway system, our transportation systems, our energy production systems, our natural resources, our air and water protection regulations, our legal system, our health care systems, our labor standards and our sense of fairness in markets and within our financial system have enabled our economic growth over the last 60 years.

     It is important that we promote good citizenship around the world so that others protect quality of life for future generations, but we also need to stay focused on our infrastructure to ensure that Americans have the platform for continuing economic progress for many years to come. We have lots of work ahead of us. Let’s find a way around political debates that postpone or delay our progress for the future of this nation. Wake-up!

 

 

John Paul Galles is the publisher of Greater Charlotte Biz.
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