China And The USA – Does Size Matter?


The World Bank recently stated that the US economy will soon be surpassed by the Chinese however, such measures are quite illusory. They work on the basis of ‘purchasing power parity’ which is not a wildly efficient measure. However strongly China’s GDP is growing and even if it does surpass that of the US, the two economies are very different in structure and economic sophistication. For example, China’s per capita income, which is a much more accurate measure of economic development, comes out as only 20% of America’s and probably only slightly ahead of that of, say, Jamaica. That is a huge difference and it will take many decades to close that chasm.

The other issue that the Chinese are keen to change is the use of their currency compared to the US$. It has already been using the Renminbi, although as yet not freely tradable, as a trading currency with direct swaps with the likes of Russia and Brazil thus bypassing the need for having to trade through the ubiquitous US dollar. This too has a long way to go still with Renminbi deals only accounting for 9% of global trade compared to 81% in the dollar.