Who’s Got the Bigger Economy: China or the United States?

BY Paul Solman  August 29, 2011 at 10:22 AM EST

Making Sense

Paul Solman answers questions from NewsHour viewers and web users on business and economic news on his Making Sen$e page. Here is Monday’s query.

Name: David Abramowitz

Question: It was recently reported that the U.S. has the largest economy in our world, more than double — and several trillion dollars higher — than China. But, is there a “currency conversion factor” necessary for a more meaningful comparison?

Paul Solman: “Several” trillion? The official numbers suggest a difference between U.S. and Chinese GDP of close to 10 trillion. (I use “several” to mean “a few”: two to maybe five. I’d be curious what the bounds are for other readers.)

The conversion of such numbers is typically made with regard to the purchasing power of different currencies, as opposed to the exchange rate. It’s called “purchasing power parity.” But even if you make this adjustment for the Chinese renminbi, the U.S. economy is still 40-50 percent larger than China’s.

Maybe not for long, though. China seems to be growing at the same 9-10 percent annually as it has for many years, compared to about 2 percent in the U.S. If those trends continue — admittedly, an enormous “if” — China would pass the U.S. sometime in the early 2020s.

It may be useful to put this projection in historical context. In his new book, “On China,” Henry Kissinger writes: “China produced a greater share of total world GDP than any Western society in eighteen of the last twenty centuries. As late as 1820, it produced over 30% of world GDP — an amount exceeding the GDP of Western Europe, Eastern Europe, and the United States combined.”

As Mao once put it: “The compass was invented in China, very long ago. The art of paper-making was discovered as early as 1800 years ago. Block-printing was invented 1300 years ago, and movable typed 800 years ago. The used of gunpowder was known in China before the Europeans.” Not to mention the clock, pasta and of course ceramics. (They don’t call it “China” for nothing.)

In short, if and when China’s economy surpasses ours in size, it may only seem a return to the world historical status quo ante, at least in the eyes of the Chinese.

Photo: Henry Kissinger and Chairman Mao, with Zhou Enlai behind them in Beijing, early 70s. Photo by Oliver Atkins, via the public domain and Wikimedia Commons.

This entry is cross-posted on the Making Sen$e page, where correspondent Paul Solman answers your economic and business questions _Follow Paul on Twitter._