THE RAPID GROWTH OF THE CHINESE ECONOMY IS ONE OF THE MOST portentous phenomena in the world today.1 Chart 9.1 shows the data comparing the total economic output of China and the United States from 1980 through 2011, and projected through 2017, as compiled by the International Monetary Fund (IMF). Some comments on the data. The comparison is measured in “purchasing power parity” dollars (ppp$). Official dollar/RMB exchange rates do not fully capture the pricing differences between China and the United States, especially in labor-intensive services, which are typically very cheap in a low-wage country. Using ppp$ inflates Chinese output by about 50 percent over currency market values. No one would claim that ppp calculations are accurate, but most analysts accept that they provide a better fit to reality. Projecting economic growth based on official currency rates tends to show that it will take well into the 2030s before Chinese GDP catches up with America’s. All such comparisons, however they are adjusted, are only gross approximations of reality, given the radical differences between the two economies.
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