China Could Pass U.S. As Top Economy This Year

By one measure, China is poised to become the world's largest economy by the end of the year. Why is this shift happening years before most estimates predicted it would?

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STEVE INSKEEP, HOST:

The United States economy has been the largest in the world since the days when Ulysses S. Grant was president. That was in the 1870s. But a new World Bank report says by one measure that could change by the end of this year: China would take over the top spot this year.

To explain what the new report means and what it doesn't, we turn to NPR's Frank Langfitt. He's on the line from Shanghai. Hi, Frank.

FRANK LANGFITT, BYLINE: Good morning, Steve.

INSKEEP: I should mention we said, by one measure, China could take over the top spot. What's that measure?

LANGFITT: That measure is called purchasing power parity. And the idea is because prices vary so much from country to country, what they like to look at - economists like to look at is how far does money really go in an economy and how much purchasing power do people have. Now, there's this new analysis that just came out this week, and it found that money went out a lot farther in poor countries, like China, than economists had thought.

And certainly this has been my experience, and I'm sure your experience, traveling around the world. Like, in the mornings, I go to my work in Shanghai. It costs me four bucks in a taxi cab. There's no way I can do that, say, in New York or Washington - it would be way too expensive.

So based on the fact that things are a lot cheaper in a place like China, the World Bank decided that China's economy was actually rapidly closing in on U.S.

INSKEEP: OK. So we're saying that the U.S. economy in strict terms is still larger. But China's parity - purchasing power parity - is getting to where it will pass the U.S. Is that the best way to measure the size an economy?

LANGFITT: Well, for measuring people's well-being and sort of their living standards, it is a good measure. It shows how much people can afford. But when you're looking at actual global economic power - which is kind of what everybody is really interested in when they talk China and U.S. - a better ways is to look at market exchange rates. Because, of course, China and Chinese companies - if they're going to go buy things overseas - they've got to exchange their money for dollars or euros, to buy things on the global market.

And by that measure, as of 2012 - again, according to World Bank - the U.S. economy was a little over $16 trillion. And China was about half that.

INSKEEP: OK. So the U.S. economy, still by that measure, by far the largest in the world. What were some of the other findings in this World Bank report?

LANGFITT: Well, it's not surprising but it's really good context, Steve. Even though the report said China was rapidly closing in gross economic terms, you know, the population here is more than four times that in the U.S. And so, on a per capita GDP basis, things here in China - income is still very, very really low; per capita around $10,000.

And the last year they looked at was 2011. And based on those figures, China was actually 99th in the world per capita GDP. That's behind countries like Egypt.

Now, I was talking to Nariman Behravesh. He's chief economist at IHS. It's an economic analysis firm. And here's how he put it.

NARIMAN BEHRAVESH: The typical Chinese person is still much, much poorer than the typical American person and has a lot of catching up to do. And that gap will not be closed for decades.

INSKEEP: Well, Frank Langfitt, how did Chinese government react to this news?

LANGFITT: This is my favorite part of the story: Silence. The state press was quiet today. And in report itself that came out from the World Bank, Chinese officials actually rejected the finding. The report said, quote, "China does not endorse these results as official statistics."

INSKEEP: Even though one of the big findings of this report is that China's economy here is getting stronger and stronger.

LANGFITT: Exactly, and the reason is the government - in handling publicity around the economic growth here - it has to be careful. Domestically, they want to emphasize it, 'cause it's a source of their own legitimacy and takes credit - but not too much. There's a huge income gap here. And also, as China gets richer, other countries are going to make bigger demands on it - more pressure to cut greenhouse gas emissions, make trade concessions.

I remember back in the 1990s, when China was trying to get into WTO. Frankly, the government was always poor-mouthing, saying they shouldn't be held to the same standards as rich countries.

INSKEEP: Frank, thanks very much.

LANGFITT: Happy to do it, Steve.

INSKEEP: That's NPR's Frank Langfitt in Shanghai.

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