Will China's Economy Really Surpass the U.S. This Year?
"This is China's century," Rogers said. "If you were smart in 1807 you moved to London, if you were smart in 1907 you moved to New York City, and if you are smart in 2007 you move to China."
And according to the data in a new report by the World Bank's International Comparison Program, Rogers' prediction of Chinese economic dominance may come true this year -- which, as the Financial Times points out, is 5 years ahead of what was previously forecast.
The King Since 1872
Economists and statisticians have recognized for years the inevitability of the Chinese economy eventually eclipsing that of the U.S. -– the world leader since it overtook the United Kingdom in 1872 –- but the speed at which that shift appears to have accelerated is a surprise.
In 2005, the ICP numbers showed that China's economy was only about 43 percent of the size of the U.S. economy; by 2011 (the data year the report is based on), China's GDP had reached 86.9 percent of U.S. GDP.
By extrapolating those numbers and using the International Monetary Fund's growth estimates from 2011 to now –- 7.6 percent for the U.S. and 24 percent for China –- it would seem that China is in fact about to end the United States' 142-year reign as global economic potentate.
Or is it?
Though there is no denying that China experienced tremendous growth in the six years between the two ICP reports, the acceleration in the numbers may be more a consequence of the ICP's change in methodology than in actual growth.
After revising the way it determined purchasing power parity -– essentially the cost of day-to-day living –- the ICP concluded that larger developing countries, like China and India, have economies that are expanding faster than previously thought.
Many Questions and Asterisks
But even assuming that the new methodology is sound, there still are reasons to suspect that China may have a long way to go before it can cry "We're No. 1!" -- most importantly having to do with the accuracy of Chinese economic data.
China's numbers have long been questionable among economists, as China's National Bureau of Statistics has been accused –- either due to gross incompetence or outright deceit -- of double-counting various economic activities, such as factory production.
%VIRTUAL-article-sponsoredlinks%The Chinese admit this among themselves, as evidenced by a 2007 diplomatic cable published by WikiLeaks, in which Li Keqiang, China's current premier and at the time a regional party head, stated that the figures used to determine China's GDP are "manmade" and "for reference only."
Further muddying the economic waters, the bureau itself, according the ICP report, "expressed reservations" about the study's methodology and "did not agree to publish the headline results for China." The report added "the NBS of China does not endorse these results as official statistics."
There is also a question about recent rates of economic growth. 2011 was a year in which the U.S. was still reeling from the 2008 financial crisis -- a black swan event in American history -– flattening GDP, which has only started to get back on track. Growth of China's GDP, on the other hand, has slowed significantly since 2011, coming in at 7.7 percent for 2013, the lowest level in 14 years.
Given these facts, it's hard to find agreement with the ICP's conclusions about China's eminent economic dominance. Even Rogers has recently expressed concerns about the high levels of debt in companies and regional provinces in China being a drag on growth, though he sees those issues as minor in the grand scheme of things. As he put it in a recent interview with Business Insider:
"As the U.S. was rising to its power and glory during the 19th century, we had a horrible civil war, 15 depressions [Yes, with a D], few human rights, little rule of law, periodic massacres in the streets, etc., etc. yet we still became the most successful country in the 20th century. "China will have plenty of setbacks along the way as does every country, company, family, and individual that rises."
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