Columnist Brett Arends, wrote for MarketWatch that China could pass the United States that quickly by a measure of purchasing power parity. Most economists believe China is decades away from having the world's largest economy, but Arends contends that assumption is based on using pure GDP as the basis for measure.
He cites the growing consumption power of China, a topic American Shipper explored in its November issue.
The IMF responded to Arends' contention by saying 'purchase-power parity is not the most appropriate measure because PPP price levels are influenced by non-traded services, which are more relevant domestically than globally.”
The IMF said it relies on market exchange rates, by which the U.S. economy is 130 percent larger than China's and projected to be 70 percent larger in 2016.
But Arends said the real issue is how steeply China undervalues its currency, aided by its huge reserves of U.S. dollars.
'Comparing economies using simple exchange rates, as the IMF suggests, raises huge problems,' he argued. 'Currency markets fluctuate. They represent international money flows, not real output. The U.S. dollar has fallen nearly 10 percent against the euro so far this year. Does anyone suggest that the real size of the U.S. economy has shrunk by 10 percent in comparison with Europe over that period? The idea is absurd.'
Arends said the point is not that the tipping point is so close, but that it is inevitable.
'This is the result of decades during which China has successfully pursued economic policies aimed at national expansion and power, while the U.S. has embraced either free trade or, for want of a better term, economic appeasement,' he wrote.
