America second to China in economy

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It’s official: America is now No. 2
MarketWatch
By Brett Arends 23 hours ago

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A Chinese national flag flutters in front of the headquarters of the People's Bank of China, China's central bank, in central Beijing
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A Chinese national flag flutters in front of the headquarters of the People's Bank of China, China's central bank, in central Beijing, May 16, 2014. REUTERS/Petar Kujundzic/Files

Hang on to your hats, America.

And throw away that big, fat styrofoam finger while you’re about it.

There’s no easy way to say this, so I’ll just say it: We’re no longer No. 1. Today, we’re No. 2. Yes, it’s official. The Chinese economy just overtook the United States economy to become the largest in the world. For the first time since Ulysses S. Grant was president, America is not the leading economic power on the planet.

It just happened — and almost nobody noticed.

The International Monetary Fund recently released the latest numbers for the world economy. And when you measure national economic output in “real” terms of goods and services, China will this year produce $17.6 trillion — compared with $17.4 trillion for the U.S.A.

As recently as 2000, we produced nearly three times as much as the Chinese.

To put the numbers slightly differently, China now accounts for 16.5% of the global economy when measured in real purchasing-power terms, compared with 16.3% for the U.S.

This latest economic earthquake follows the development last year when China surpassed the U.S. for the first time in terms of global trade.

I first reported on this looming development over two years ago, but the moment came sooner than I or anyone else had predicted. China’s recent decision to bring gross domestic product calculations in line with international standards has revealed activity that had previously gone uncounted.

These calculations are based on a well-established and widely used economic measure known as purchasing-power parity (or PPP), which measures the actual output as opposed to fluctuations in exchange rates. So a Starbucks venti Frappucino served in Beijing counts the same as a venti Frappucino served in Minneapolis, regardless of what happens to be going on among foreign-exchange traders.

PPP is the real way of comparing economies. It is one reported by the IMF and was, for example, the one used by McKinsey & Co. consultants back in the 1990s when they undertook a study of economic productivity on behalf of the British government.

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Yes, when you look at mere international exchange rates, the U.S. economy remains bigger than that of China, allegedly by almost 70%. But such measures, although they are widely followed, are largely meaningless. Does the U.S. economy really shrink if the dollar falls 10% on international currency markets? Does the recent plunge in the yen mean the Japanese economy is vanishing before our eyes?

Back in 2012, when I first reported on these figures, the IMF tried to challenge the importance of PPP. I was not surprised. It is not in anyone’s interest at the IMF that people in the Western world start focusing too much on the sheer extent of China’s power. But the PPP data come from the IMF, not from me. And it is noteworthy that when the IMF’s official World Economic Outlook compares countries by their share of world output, it does so using PPP.

Yes, all statistics are open to various quibbles. It is perfectly possible China’s latest numbers overstate output — or understate them. That may also be true of U.S. GDP figures. But the IMF data are the best we have.

Make no mistake: This is a geopolitical earthquake with a high reading on the Richter scale. Throughout history, political and military power have always depended on economic power. Britain was the workshop of the world before she ruled the waves. And it was Britain’s relative economic decline that preceded the collapse of her power.

And it was a similar story with previous hegemonic powers such as France and Spain.

This will not change anything tomorrow or next week, but it will change almost everything in the longer term. We have lived in a world dominated by the U.S. since at least 1945 and, in many ways, since the late 19th century. And we have lived for 200 years — since the Battle of Waterloo in 1815 — in a world dominated by two reasonably democratic, constitutional countries in Great Britain and the U.S.A. For all their flaws, the two countries have been in the vanguard worldwide in terms of civil liberties, democratic processes and constitutional rights.

Discuss.

[Simon_Jester]

Eh. They're four times bigger than we are, it stood to reason that sooner or later they'd stop being four times poorer than we are too.

[mr friendly guy]

I mentioned this earlier in a thread about the Chinese economy being underestimated. It was predicted they would surpass America in purchasing power parity terms this year. I thought 1 month ago was when the IMF found that China surpassed the US.

Now I am going to sleep soon so no long speeches. However....

China is number one in terms of GDP purchasing power parity. The US is still ahead in GDP nominal. Previously the US was ahead in both PPP and nominal. So for the next few years when people say the "biggest economy is..." the answer would include a disclaimer. Eventually China will pull ahead in GDP nominal as well.

Back to the article

This will not change anything tomorrow or next week, but it will change almost everything in the longer term. We have lived in a world dominated by the U.S. since at least 1945 and, in many ways, since the late 19th century. And we have lived for 200 years — since the Battle of Waterloo in 1815 — in a world dominated by two reasonably democratic, constitutional countries in Great Britain and the U.S.A. For all their flaws, the two countries have been in the vanguard worldwide in terms of civil liberties, democratic processes and constitutional rights

So the British empire was a "reasonable democratic" nation since 1815 eh, and helped civil liberties since that time? Say what? I know they are trying to spin a narrative with a tinge of the China threat, but at least try and be a bit accurate to when the British actually started to improve things. Hint - Britain still fucked over China and India after that date, and women were not allowed to vote until years later. Something they could have found out in like 2 minutes of google.

This is essentially pointing out, UK and US have these good features, eg democratic processes. China does not and it will change everything. Good grief, the projection is strong there.

[Zixinus]

Personal opinion: Well it had to happen eventually. The USA has been beaten at its own game: free market capitalism taken up by someone else to an extreme it was not willing to go. Capitalism does not require a democracy-based human-rights respecting (mostly) society it seems.

It is rather worrying that the most powerful economic force right now will belong to a country that thinks that a free democracy is choosing the only party and from only the party-approved list of candidates.

[Highlord Laan]

It is rather worrying that the most powerful economic force right now will belong to a country that thinks that a free democracy is choosing the only party and from only the party-approved list of candidates.

Have you not been paying attention to American politics for the past twenty years?

[Patroklos]

Personal opinion: Well it had to happen eventually. The USA has been beaten at its own game: free market capitalism taken up by someone else to an extreme it was not willing to go. Capitalism does not require a democracy-based human-rights respecting (mostly) society it seems.

It is rather worrying that the most powerful economic force right now will belong to a country that thinks that a free democracy is choosing the only party and from only the party-approved list of candidates.

Look at other level democracy of Western countries when individual wealth was equivalent to what it is in China right now. China has a long way to go, and so does the evolution of their own democracy obviously.

[Simon_Jester]

So the British empire was a "reasonable democratic" nation since 1815 eh, and helped civil liberties since that time? Say what? I know they are trying to spin a narrative with a tinge of the China threat, but at least try and be a bit accurate to when the British actually started to improve things. Hint - Britain still fucked over China and India after that date, and women were not allowed to vote until years later. Something they could have found out in like 2 minutes of google.

Put this way.

Unless you assert that democracy did not exist until, say, the 1960s... you cannot use the fact that the franchise was restricted

If you're going to restrict "democracy" to mean "universal suffrage with full respect for civil liberties of minorities and colonial dependencies," without thinking about the context of the era... Democracy wasn't even a thing until the 1960s. In which case you need an entirely different word for what 19th century republics were. We can't call it "democracy." Even though it was clearly a system with most of the same electoral institutions we have today, and even though the political dynamics are in some cases hauntingly familiar.

This is essentially pointing out, UK and US have these good features, eg democratic processes. China does not and it will change everything. Good grief, the projection is strong there.

What China has that is really likely to force change on the world is a tradition of technocratic-managerial government, as opposed to government by interest group. That is what really makes them foreign to the Anglosphere.

Personal opinion: Well it had to happen eventually. The USA has been beaten at its own game: free market capitalism taken up by someone else to an extreme it was not willing to go.

Actually, I would argue that the US has been beaten at its previous game: free market capitalism managed competently enough to produce real economic growth. China has been intelligent enough to make sure it profited from trade, not just the companies that served it.

Capitalism does not require a democracy-based human-rights respecting (mostly) society it seems.

It never really has.

[Starglider]

Personal opinion: Well it had to happen eventually. The USA has been beaten at its own game: free market capitalism taken up by someone else to an extreme it was not willing to go. Capitalism does not require a democracy-based human-rights respecting (mostly) society it seems.

Less environmental regulation and worker rights in China is certainly a factor in the rapid economic turnabout, but I think more important are;
a) Elites in both the US and China (and more generally, developed world vs developing world countries) profit from exploiting labour arbitrage.
b) China has a stronger cultural comittment to economic nationalism / mercentalism, while the US has an ideological comittment to 'free trade' even when it puts the US at a disadvantage.

[mr friendly guy]

Unless you assert that democracy did not exist until, say, the 1960s... you cannot use the fact that the franchise was restricted

If you're going to restrict "democracy" to mean "universal suffrage with full respect for civil liberties of minorities and colonial dependencies," without thinking about the context of the era... Democracy wasn't even a thing until the 1960s. In which case you need an entirely different word for what 19th century republics were. We can't call it "democracy." Even though it was clearly a system with most of the same electoral institutions we have today, and even though the political dynamics are in some cases hauntingly familiar.

The problem is when most people use the term democracy, they aren't so much going "rule of the people for the people," but are referring to the political processes which allows people to vote and elect their leaders. If you're going to say its still democratic, but just restricted, that's fair enough. We can quibble on what "reasonably" means when we say "reasonably democratic." However if you say "reasonably democratic" I can also make a case that the PRC is "reasonably democratic." For example they have elections on the local level, the President is elected by people from the CCP (ie democracy is limited to a small elite), and the government is thought to adjust policies based on popular internet outrage.

Now I agree democracy is clearly different depending on the context of the era, however it seems to be the author of the article is willing to compare the modern day PRC with western societies back in the 19th century. So now it becomes fair game to point this out.

What China has that is really likely to force change on the world is a tradition of technocratic-managerial government, as opposed to government by interest group. That is what really makes them foreign to the Anglosphere.

I have seen similar claims but I find it dubious. China isn't interested in exporting its form of government like how the superpowers were in the cold war. They are interesting in exporting material products and services. If China changes things, it would be via inspiration (albeit unintentional) and not as a deliberate attempt.

I would also contend that almost half the countries anyway aren't democratic. *. So it really won't change much from the democratically orientated perspective. Obviously it will from other perspectives, eg China's technocratic bureaucracy where the leaders have limited terms is clearly different from say a ME monarchy, or North Korean dictatorship.

*The percentage IIRC was 48% of countries aren't democratic and those figures come from Freedom House.

Capitalism does not require a democracy-based human-rights respecting (mostly) society it seems.

It never really has.

Agreed. Although I wonder if some people needed the PRC example to see it.

[Simon_Jester]

I have seen similar claims but I find it dubious. China isn't interested in exporting its form of government like how the superpowers were in the cold war. They are interesting in exporting material products and services. If China changes things, it would be via inspiration (albeit unintentional) and not as a deliberate attempt...

I didn't say China was going to export its form of government. I said China's different approach to government is going to force change.

Basically, the consequences spring from the apparent fact that China never abandoned the idea that governance was the job of the government, as opposed to the interest groups that write legislation for them. As a result, I expect that China will weather 21st-century economic crises relatively well. Either other countries' populations will start to wonder how they can get governments (elected or otherwise) that plan ahead the same way... or China's different basic attitude toward government will leave them head and shoulders above all the world's kleptocracies, including both the public kleptocracy of the stereotypical Third World dictatorship, and the private kleptocracy that is modern neoliberalism.

Capitalism does not require a democracy-based human-rights respecting (mostly) society it seems.

It never really has.

Agreed. Although I wonder if some people needed the PRC example to see it.[/quote]Some do. Many still don't see it. Libertarian-ish anarchocapitalism has blithely ignored twenty years of China taking advantage of free trade and international corporate power structures to boost its own growth while remaining as stubbornly undemocratic as it was around the time of Tiananmen Square.

[Zixinus]

Have you not been paying attention to American politics for the past twenty years?

I'm a 24 year old Hungarian, but from what I manage to get about the subject, voting still matters in the USA. In the USA, the current government does not pick who you can vote for next election.

Yes, there is certainly voter fraud, cheating, polarizing by various interest groups and such in the system, or so I gather. But elections and voting still matter. Obama had to work to get reelected and there was a genuine change (whether small or large) that he would leave his office and give it to the next winning candidate.

The system is damaged, possibly broken in various ways but it is real. It is not a farce. That is the difference that matters.

[Darmalus]

Basically, the consequences spring from the apparent fact that China never abandoned the idea that governance was the job of the government, as opposed to the interest groups that write legislation for them. As a result, I expect that China will weather 21st-century economic crises relatively well. Either other countries' populations will start to wonder how they can get governments (elected or otherwise) that plan ahead the same way... or China's different basic attitude toward government will leave them head and shoulders above all the world's kleptocracies, including both the public kleptocracy of the stereotypical Third World dictatorship, and the private kleptocracy that is modern neoliberalism.

This is ultimately my view on how China will "change everything" for Western style democracies. China doesn't need to export government via military force like the USA has recently done, they really only need to do 3 things.
1) Not be a Western style democracy
2) Be successful compared to the competition.
3) Not be an international dick.

Doing this could result in many places choosing China-style government over western style. If climate change gets real bad and China can weather it better than it's competitors, well, I know I'd go with the guy which isn't an unsuccessful (in the face of a changing world) international dick.

[jwl]

Basically, the consequences spring from the apparent fact that China never abandoned the idea that governance was the job of the government, as opposed to the interest groups that write legislation for them. As a result, I expect that China will weather 21st-century economic crises relatively well. Either other countries' populations will start to wonder how they can get governments (elected or otherwise) that plan ahead the same way... or China's different basic attitude toward government will leave them head and shoulders above all the world's kleptocracies, including both the public kleptocracy of the stereotypical Third World dictatorship, and the private kleptocracy that is modern neoliberalism.

What makes you think that?
Why do you think so many Chinese officials have been accused of corruption charges recently? The reason is that all Chinese officials are corrupt, so this way factions of the party can pick and choose which ones to get rid of. At this point, the manhunt is so extensive that future officials will probably try to abstain from corruption to make sure they can't be taken down in the same way, but this is a new thing.

[Simon_Jester]

What I'm getting at is that in the US's actual system of government, and that of the UK, there is a problematic form of corruption that we've more or less explicitly enshrined as a good idea. It's the intersection between politicians seeking reelection money, law enforcement reluctant to prosecute large organizations for crimes against the economic well-being of the state, and "public-private partnerships" that enable corporations to essentially buy up the ability to decide how the state will run important parts of its responsibilities.

In China, my impression is that the underlying model is somewhat different. Sure, lots of officials are taking bribes individually, but I don't think we're going to see Chinese politicians entering office with an ideological commitment to privatizing their own government.

[Zixinus]

Basically, the consequences spring from the apparent fact that China never abandoned the idea that governance was the job of the government, as opposed to the interest groups that write legislation for them. As a result, I expect that China will weather 21st-century economic crises relatively well. Either other countries' populations will start to wonder how they can get governments (elected or otherwise) that plan ahead the same way... or China's different basic attitude toward government will leave them head and shoulders above all the world's kleptocracies, including both the public kleptocracy of the stereotypical Third World dictatorship, and the private kleptocracy that is modern neoliberalism.

This is the bit that worries me. China has adapted to the new world in a rather effective way. Others will follow its example. I'm worried that they will take the "ruthless police state that has censorship on every level of society" along with that and think that its an integral part of the package.

I hope that if governments change, some level of democracy can change along with it.

[Fingolfin_Noldor]

Basically, the consequences spring from the apparent fact that China never abandoned the idea that governance was the job of the government, as opposed to the interest groups that write legislation for them. As a result, I expect that China will weather 21st-century economic crises relatively well. Either other countries' populations will start to wonder how they can get governments (elected or otherwise) that plan ahead the same way... or China's different basic attitude toward government will leave them head and shoulders above all the world's kleptocracies, including both the public kleptocracy of the stereotypical Third World dictatorship, and the private kleptocracy that is modern neoliberalism.

This is the bit that worries me. China has adapted to the new world in a rather effective way. Others will follow its example. I'm worried that they will take the "ruthless police state that has censorship on every level of society" along with that and think that its an integral part of the package.

I hope that if governments change, some level of democracy can change along with it.

I think you must first realise that democracy can only happen only if the majority of the people want democracy. For a democracy or even a totalitarian police state to exist, the culture and the people must want it.

Being afraid is pointless. This sort of fear is what gives rise to pointless divides. Blaming other countries for giving an example to others is ridiculous since after all, that said country has to make a conscious choice to switch to that political system in the first place.

[mr friendly guy]

In the game of "copy my political system", China isn't the opposing team. Its not even playing. The West makes loans contigent on "good goverance" ie adopt some of our systems. The US and the coalition of the willing engaged in regime change, with attempts to model the new regimes after Western style democracies. China makes loans on "no extra strings attached aside from the purpose of the loan". In that regards China isn't even trying to promote its system.

Now its still possible that China's success may make other countries decide to copy it verbatim (even though China itself feels that its not possible, because each country has a unique set of circumstances), instead of copying the parts that work, and parts which might not necessarily affect it much eg censorship. It is still possible for China to "win out" over Western nations by virtue of "inspiring" others to follow suit (without really trying), even when the West actively promotes its system. However if that happened it would not just be improbable, but amazing.

Now IIRC according to freedom house, around 50% of nations are not democracies anyway (at least how we understand the term). China's example might encourage others to keep their system in response of the "democracy leads to economic prosperity" narrative that's come up a lot. In that case I would argue China's "inspiring example" isn't so much changing the world, as just keeping it in the status quo.

[mr friendly guy]

This news will likely make China Bears such as Gordon Chang go into fits of impotent Doommonger rage as China's economy in 2013 is 3.4% larger (nominal terms) than previously thought.

http://www.bloomberg.com/news/2014-12-1 ... onomy.html

I will post the relevant bits with commentary

The gross domestic product of the world’s second-largest economy was 58.8 trillion yuan in 2013, according to the results of a nationwide economic census announced today. That’s 3.4 percent larger than the previously reported figure.

The past two censuses led to a 16.8 percent boost to 2004 GDP and a 4.4 percent increase in 2008. Ma Jiantang, the head of the National Bureau of Statistics, said Dec. 16 that China would revise 2013 GDP upward by “a bit more than 3 percent.”

Basically its been well known that people think China has underestimated the size of its services sector. Most probably not so well known outside interested China watchers or commentators as I swear most people think most of China's growth is manufacturing. And cheap manufacturing to boot as well.

Every 5 years they do another survey and try and keep it as accurate as possible. This year they concluded their economy in 2013 was 3.4% larger because of underestimation of their services sector. That's roughly $300 billion USD (about the size of Malaysia's economy). From what I read growth this year will be unaffected, so just add around $300 billion USD and the growth rate for 2014. So in PPP terms (ie the measurement which the IMF says China is bigger) and you would expect at least 300 billion international dollars when you convert it from nominal to PPP (most probably more because China's GDP PPP is larger than its GDP measured in nominal terms).

Just to give you an idea just how much effort goes into the survey

The economic census is conducted about every five years to gather information on the manufacturing and services industries. Over 10 million businesses and about 60 million enterprises were visited early this year by about 3 million census takers, according to the official Xinhua News Agency.

Oh and another thing to note - depending on who you talk to, China is still using the old method of calculating GDP. The newer method includes putting things like R & D under investment instead of costs. The US has already adopted this method and IIRC added half a trillion to their economy. Its said that China would use the new method at the end of this year, but its now looking like next year. How much would that add to China's economy? Who knows although some people have suggested

It isn’t clear whether NBS used an upgraded accounting method, which includes research and development as investment, and prices self-owned residency on estimated rental costs. Analysts including CICC’s Liang, Rhodium Group LLC’s Beibei Bao and Capital Economics Ltd.’s Mark Williams said the statistics bureau didn’t apply the new standard to the revision, and that output will probably be revised up again.

“Today’s revision is not the end of the story,” said Williams in a note. “The NBS has also been adjusting the national accounts data to bring them into line with international best practice. These changes now seem likely to be introduced early next year,” he said, adding that the change of methodology could lead to another increase of 3 to 5 percent in GDP.

[LaCroix]

The newer method includes putting things like R & D under investment instead of costs.

According to common opinion about the Chinese and their relationship to copyright, not much...

But I can agree, as a regular buyer of chinese machinery, that they do have a very steep learning curve in most products. For example, I've bought the same storage tent (36m² footprint, steel structure with a truck tarp cover) for 3 years in a row for quick expansion of my storage capability, and can say that while the first one needed some modification to wark, the next one was acceptable, and the last one was excellent in terms of steel dimensions, construction and tarp quality.

[mr friendly guy]

Well the newer method also counts the costs of making movies as investments. So all the Chinese need to do is crank out a couple of big budget communist propaganda film, and voila. GDP growth.

[Thanas]

China makes loans on "no extra strings attached aside from the purpose of the loan". In that regards China isn't even trying to promote its system.

I don't think that this is quite true. China is not doing it on the same level as the West. But the recent blowup over the ivory smuggling makes it quite clear that China is using its influence, it just isn't that public about it (or we do not read about it that much as the western media does not speak or read chinese).

[mr friendly guy]

I think we are talking at cross purposes here. Its not so much that China doesn't use its influence, its that it tends to prefer to use its influence to achieve different things.

For example China is using influence to do things like convince countries to take its side in disputes. Both the PRC and ROC are infamous for checkbook diplomacy in regards to convincing countries to recognise one and not the other. I am sure there are other examples as well. While the West also does this, they also use their influence to try to convince others to copy their political system. I am not convince China actually cares any more (not since the Cold War days anyway). Aside from the exception of trying to convince NK to adopt some reforms, I don't think they care if country X is a god damn dictatorship or shining democracy, as long as they trade with China and take sides in geopolitical disputes. A pertinent example is trying to get other nations to join their Asian Infrastructure Investment Bank, which some have described as a rival to the World Bank and which the US has oh so subtly opposed. A quick look at its members would reveal both democracies and non democracies.

Edited for more information

[Thanas]

Oh yeah, I don't think we really disagree here. Chinese investment is practical, they have no problem dealing with whoever gets them what they want. The west likes to at least pretend to actually do something good, though of course everybody knows the results are often less than ideal.

For example the investment in Afghanistan is a good choice here. China is planning to bulldoze ancient monasteries and destroying the culture to get to the resources, whereas western investment largely disappears in the pockets of the warlord who lies promises to be democratic.

I don't think we really disagree that the Chinese get more done that way. As my personal preference, I don't quite like the way though. A foreign policy devoid of ideals (and yes, I know the record of the west here is massively hypocritical) is not something I would want my country to have.

[K. A. Pital]

Key point is that China is not necessarily forcing a regime change in countries of the Third World while the West often does, with results that can only be described as abysmal.

It also has no relation to your country, Thanas, as the topic is China.

[Thanas]

Key point is that China is not necessarily forcing a regime change in countries of the Third World while the West often does, with results that can only be described as abysmal.

Sure. Not that simply supporting dictators is a good thing, as South Sudan shows.

It also has no relation to your country, Thanas, as the topic is China.

Indeed....why the remark?