China's economy grew 6.9 percent in the first quarter of 2017. The government is aiming for growth of around 6.5 percent in 2017. Lets take a look back at China's Economic Growth.
America Enterprise Institute leading economic analyst and researcher published a write-up on a 2014 study made by Credit Suisse to measure China's household wealth by geographical regions and sovereigns. In deciding on the argument whether China will surpass US to become the world biggest economy, the only right way is to compare the GDP between the two rich nations. Some advocated the use of nominal GDP using prevailing exchange rates for being the better measure. Others preferred on the use of GDP adjusted by Purchasing Power Parity (PPP). The analyst do not agree to the use of the above 2 measures due to various reasons.
Debate has been ongoing as to which country's economy is the largest currently. GDP adjusted by PPP will put China on the top spot ahead of US, while other indicators will put US ahead of China. The news and evidence used to back China's economy as the largest is to emphasize the importance of competition in Sino-America and single our China's economic threat and might. A undisputed fact is China has been enjoying higher economic growth compared to US. It is a matter of time before China will surpass US. One indicator points otherwise, which the the national wealth. From 2008 to 2014, US came out tops in terms of total national wealth amount.
Estimate by Credit Suisse puts private wealth for Americans at $42.9 trillion. China's national wealth is only at $4.7 trillion. This implies US is about 9 times wealthier compared to China. GDP ratios point a very different picture. At end 2014, China's official GDP was $9.8 trillion while US official GDP was $16.77 trillion, which is about 2 times more compared to China.
The phenomena and observation might confuse many economists at first. GDP was expected to measure wealth created for the period of measurement, and is similar to total income produced by a thriving enterprise.
Credit Suisse estimation methodology is not made known. If it is almost proportional to the economy's assets, together with labor force for each country from US or China to manufacture goods and provide services, American income generated is 5 times more valuable compared to Chinese income on a per dollar basis. In share market terms, US had a P/E ratio of 5 times compared to China P/E ratio. The ratio is not accurate but it is possible. US should have a higher ratio than China, but the exact multiple of 5 times is hard to ascertain. The argument for China overtaking US economically is not intelligent or fascinating. However the argument is relevant to highlight the Chinese economic growth and the right thinking behind it.
GDP is the total measure of all goods & services produced in an arbitrary period of measurement, and it accounts for improvement and deterioration of capital stock. OECD has their own definition which is sum of all residential and institutional economic units involved in production and includes taxes but excludes subsidies and miscellaneous products.
Many researchers are developing around the multiple ratio ideas, hopefully to understand it better in the future years. The analyst article is a useful trigger point for thinking about the economy of China. It is not so much about trying to figure out which economy is the largest in the world, but to determine the growth quality based on the value being assigned to existing and forward growth. Political leaders from Washington DC and Beijing can implement better economic policies based on a more informed understanding on the growth measurement. China could use the new lights shed on the types of growth for their economic reform process.