These numbers are certainly skewed and are also the direct result of a recalibration of GDP statistics that look at what money can buy in different countries. This measure of “purchasing-power parity” has China coming out on top, moving up to $13.5 trillion in 2011 versus $7.3 trillion calculated using exchange rates. The 2011 numbers are the latest year available for this measure. The U.S. economy presently stands at $15.5 trillion but with this recalibration, China would push past the United States on paper sometime late this year.

China USA Flags

East V. West

Clearly this day was always in the making beginning in the 1980’s when China moved from Mao to Ping and the quest for wealth. It, of course, doesn’t hurt if you don’t care for the environment at the expense of growth, live in an autocratic society, and have 1.4 billion people to drive that quest. The United States has enjoyed the world’s largest economy for over a century but will have to settle for “second fiddle” now that Asia has shown what its been doing for the last 30 odd years.

While the day will certainly make news it’s not the end-all-be-all. The United States will still have a immeasurable lead in innovation, and its domination in a number of industries and sectors is safe as houses. New York will still be the world’s leading financial center, and the dollar will still be the dominate currency in the world for the foreseeable future. That’s not to say it isn’t without its problems, the tax code is in shambles, education is lagging behind the rest or the world, infrastructure requires improvement, and the income gap has grown since I began writing this piece.

What it really means

The Chinese are a proud people and there will be no small measure of celebration. China has been victimized, in its opinion, by the West for centuries and will find some validation in its authoritarian economic model. Additionally, the country will enjoy some “I told you so” with regards to democratic, free-enterprise systems that it believes holds both the United States and Europe back.

China after earning this distinction of largest economy needs be wary of letting it go to the country’s head. Much of what will place China ahead of the United States are also the country’s economic shortcomings. Investment in excess capacity, ridiculous real estate construction that people can’t afford, and the build up of debt can’t be ignored. Technology, financial professionalism, and managerial expertise are keys to an advanced economy and China is lacking in each.