Is China Really More Economically Powerful than the United States?

A couple weeks ago the World Bank reported that the Chinese economy would pass the U.S. one by the end of this year. This led to rather breathless headlines from normally more sober observers (FT: China poised to pass US as world’s leading economic power this year). In an op-ed yesterday in the international New York Times, I argue that GDP is an awful measure of economic power, and explain why Chinese economic power is often less (though sometimes more) than meets the eye.

The op-ed is broad, but I’d like to think that its themes should help us think more intelligently about energy and climate.

In particular, the piece draws in part on thinking that developed while I was working on my recent book By All Means Necessary: How China’s Resource Quest is Changing the World with my colleague Liz Economy. The latest headlines about China compare its economy to the U.S. one using purchasing power parity. Yet when Chinese companies compete for resources abroad, whether through trade or investment, it’s transparently clear that what matters is Chinese wealth measured in international market terms. No one in Nigeria or Canada cares how much the money China offers for their resources can buy in Beijing.

The other big thing I learned while working on the book was how difficult it can be for Beijing to mobilize the country’s economic assets, even including state-owned firms that superficially would appear easy to control and direct. The reality is that just because Chinese entities might give the state power in principle doesn’t mean that they give it similar power in practice. One might draw a loose analogy to the United States: the U.S. government can occasionally harness the attraction of U.S. energy to geopolitical ends (for example by conditioning foreign acquisitions of U.S. firms and mineral rights on the behavior of the acquiring companies), but that’s normally difficult. (See U.S. natural gas exports and Russia/Ukraine.) To be certain, this analogy is ripe for misinterpretation – the Chinese government often has much more influence over state owned companies than the U.S. government has over private American firms (though see implementation of environmental safeguards for a place where that’s typically not the case). But it’s useful nonetheless.

I’m interested in any thoughts that readers have about the op-ed, and, in particular, about any other implications for energy and climate. Take a look here if you’re interested.

This piece is cross-posted from The Council on Foreign Relations with permission.

2 Responses to "Is China Really More Economically Powerful than the United States?"

  1. nisarahmedBathe   May 16, 2014 at 1:24 am

    China is big country with largest population , which forms the backbone of its GDP with cheap labor , the majority labor works tirelessly to earn more as possible, the awareness of working hours ; working conditions or insurances coverages not known , thus the overheads saved contributes to the cost of products ,.. in USA the democracy with high cost of livings ; the quality of life plus civil rights awareness and open courts carries cost,.. etc ,…. the overheads cost much much higher … China has intelligently opened ; and concealed at 'Will' the assets of importance vital to its existence , this is of course serves as biggest edge to it huge strides that China has leapt forward , as more of it leapt are awaiting the economic order as more of the
    chess moves are yet to be unfolded in time to come, as more Economic power house of USA
    and other Economies steps up, this is strange world of smart competition , not only the powerful takes over,… the winner's is always smarter, sharper and with lesser liability wins..@nisarahmedbathe

  2. devasa   May 22, 2014 at 3:09 am

    China can dispense more favours than US by constructing infrastructure projects. Cheap labour is a component of this giveaway. US can not match China.

    Nations only look at US for handouts if any or for military help for rulers to be kept in power.