China's economy may surpass US before 2020

China's economy is now nearly half as big as the U.S. economy. Its economic growth figures suggest that China could become bigger sooner than previously thought.

This file photo shows a pack of bills of Chinese yuan bills next to U.S. currency. Karlsson argues that recent data shows that China's economy may become bigger than the US economey sooner than previously expected.

According to preliminary estimates, China's GDP in 2011 was 47.156 trillion yuan, which at the current exchange rate of 6.3138 translates into roughly $7.47 trillion.

By comparison, tomorrow's GDP report for the United States will likely show that 2011 GDP was roughly, or slightly over $15 trillion. That means that China's economy is now nearly half as big as the U.S. economy.

This in turn means that China's economy could become bigger even sooner than previously thought. If the economic growth gap is 6% per year(lower than the average rate the last decade) and real appreciation is 2.5% per year (again, a lot lower than the average rate the last decade) than that would be sufficient for China's economy to become bigger by 2020. If the growth gap and/or real appreciation is closer to the average rate for the last decade, it could happen even sooner.

It is true that per capita income in China would still be a lot lower since China's population is more than 4 times as big. And in per capita terms, China might never surpass America. However, the fact that average income is so low is reason to believe thatv the "catch up" effect will continue to fuel growth in China. And so note that per capita income of one fourth of the U.S. level means that it would still be a lot lower than in the other majority Chinese countries (Hong Kong, Macao, Taiwan and Singapore).

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