The financial media has been raving about data released on Wednesday that shows China’s supposed economic superiority over the United States. The argument, per the World Bank’s International Comparison Program, goes that the Asian economic behemoth’s Purchasing Power Parity—cost of living indexed with a specific currency; in China, the yuan—is set to surpass the U.S.’s this year, marking the first time since 1872 that the U.S. has not held first place in this measure, and a whole six years ahead of when economists forecast this to come.
The problem in that thesis being anything worth noting is two-fold. One, economists forecast this to come. Not much is shocking about the economic thrust behind a nation of 1.351 billion people. Second, PPP means little without context, so its irrelevancy is compounded when high disparity on a per capita basis is present, which China is certainly guilty of, ranking in the low 90s in world rankings, which equates to less than $10k in Gross Domestic Product per citizen. Moreover, the U.S.’s total GDP, at $16 trillion, is twice that of China’s, though that is an indicator that also can mislead when taken at face value, so if China passes the U.S. here, that is nothing too significant. Again, no one should be surprised about a big country having a lot of economic weight.
Unless you are China, that is. China disagrees with the World Bank’s finding, as it has with past developments of the country surpassing Germany as largest exporter, Japan as the no. 2 economy, and the U.S. as the biggest trader. They take this stuff seriously. As one person familiar with the matter told the Financial Times: “They begged and threatened for a whole year” prior, to suppress the information. Suppressing this type of information, according to Quartz, lets them escape greenhouse emission reduction obligations, and helps them stonewall on calls for tax and welfare reform.
Not that those policies are desirable. As I wrote for Seeking Alpha, the government propping up the economy—be it through bailouts to dinosaur corporations and zombie financial instruments, or what have you—has only served to inflate already dangerous bubbles. In a time when China’s wages are no longer the world’s cheapest (Mexico gets that honor), the wealth inequality pseudo-problem can be remedied through gradually introduced free market forces.
Not that this is likely to happen in the short-term. On account of recent weak data in the Chinese Purchasing Managers Index, Bank of America released a note saying: "We expect Beijing to implement its mini-stimulus—some small-scale growth supportive measures focusing on special credit policy in the rural area and fiscal spending in social housing, urban infrastructure and central & western region infrastructure."
This does not mean that the U.S.’s comparative position here is the right one, either. As the Heritage Foundation notes, American economic freedom is “languishing” with increasing regulations. The American Enterprise Institute says the U.S. leads in technological innovation, but in an environment increasingly unfavorable to exceptional business ideas, growth prospects will be hampered. Plus, the Financial Times reports, China is settling into a position of technological innovation at an alarming pace. But for now, with Tunisian citizens representing more GDP per capita than them, China is nowhere close to the U.S.'s standard of living, the real mark of prosperity, even with diminished prospects accounted for.