Background There is increasingly loud talk of China surpassing America in raw economic size within the next decade, or, adjusting for purchasing power, as soon as this year. Some of these claims are plainly inaccurate, most are misleading, and all are potentially harmful. The claims contribute to false impressions about the future of the Asia–Pacific region, even the world as a whole. Perceptions of China’s economic strength and importance underpin its global presence, from its own borders to sub-Saharan Africa and Latin America. A deeper look, though, shows that the People’s Republic of China (PRC) is still far smaller and poorer than the U.S. on the most important economic dimensions, so it’s true global weight is correspondingly limited. While this paper focuses on economics, all U.S. policy should be founded on good information about China’s relative position right now and what the future will hold. The U.S. has a huge economic advantage that should last for several generations, at least. The best strategy to compete with the PRC thus begins with getting the American house in order—and in doing so, the U.S. should absolutely not imitate the PRC. A battle with Beijing over which government can intervene in its economy more is doomed to failure and comes with ugly drawbacks that have been lost in China hype. America can and should win the economic competition. However, it should not hope for China’s failure. An economically weakening or stagnant China hurts the rest of the world. In contrast, a China on a more sustainable course benefits everyone, including the U.S.
America vs. China: Today One of the most surprising developments resulting from the financial crisis is the belief among ordinary Americans that China has become the world’s leading economy. This view appeared in the roughest times of 2009 and has persisted even though the impact of the crisis has begun to ebb. U.S. media have frequently conveyed the same belief.[1] But it is patently absurd. The principal reason for Americans’ dismay is jobs: Official U.S. unemployment breached 9 percent during the past two years. It is even higher when counting those who have stopped looking for jobs, yet would work if they could. In contrast, Beijing issues an urban unemployment figure below 4.5 percent, but this includes only those officially recognized and no one, including officials at the Ministry of Human Resources and Social Security, believes it is accurate.[2] The state-controlled Chinese Academy of Social Sciences placed urban unemployment at 9.4 percent before the full impact of the financial crisis was felt. The PRC’s rural unemployment has long exceeded 20 percent.[3] True Chinese unemployment is certainly higher than true American unemployment, and, depending on how unemployment is measured, could be much higher. The contest in income, meanwhile, is utterly unequal. American Gross Domestic Product (GDP) in 2009 was nearly $15 trillion, while China’s was $5 trillion, despite a population more than four times as large. The average American had $48,000 in 2009 income; the average Chinese had less than $4,000. Both of these gaps narrowed in 2010, as they have almost every year in the past 30, but they remained huge. It is true that many consumer goods are cheaper in China, some much cheaper. Economists try to formalize different prices in different countries by checking the purchasing power of the same amount of money. The idea is that the same amount of money should buy the same good or service everywhere. When it does not, because one country has far lower prices than another, for instance, it can be useful to compare incomes using differences in prices. The difference in prices is called purchasing power parity (PPP). PPP recognizes that earning $50,000 a year in London is very different from earning $50,000 a year in Luanda, Angola. But PPP is often not very accurate. PPP is one of the reasons for the claims