Is China Already The World’s Most Dominant Economy?


Men 2010, when President Barack Obama welcomed his Chinese response to the summit in Washington, DC, He greeted him with a handshake and a quick, shallow dip in his head. An image of the US president bowing before China makes a cover photo of the book “Eclipse” published the following year. Written by Arvind Subramanian of the Peterson Institute for International Economics, a Washington-based think tank, the book predicted that China would soon dominate the world economy and the United States could do little about it. Your correspondent once included a cover image in his presentation at the Center Party School in Beijing. It caused considerable Frisson, says an article published in economist.

Economic superiority

To assess the country’s economic “superiority,” Subramanian combined world trade, net capital exports, and global market share. GDP (Measured at both market exchange rates and purchasing power parity, which seek to correct international differences in prices for similar commodities).He weighted each attribute roughly based IMFA formula for assigning votes to members. He claimed that his index successfully captured Britain’s economic hegemony in 1870, the competition with Germany in 1913, and the American diet for the next decade.


According to this measure, Mr. Subramanian predicted that China would become the most dominant economy in the world by 2020. Ten years after that forecast, China faced a trade war with the United States, slowing growth and destabilizing its currency. Mandatory to strengthen control of capital outflows. Still, Subramanian’s core predictions have come true. Based on the original formula of this book, China became the most dominant economy in the world last year (see graph). Its slowdown in growth is not worse than (so far) Subramanian’s expectations, and the covid-19 pandemic has helped increase its share of world trade.

Subramanian has succeeded in predicting how his index will evolve. But does his index capture the economic advantage well? Other authors included wealth, GDP Per capita and other proxies for economic sophistication, as well as scale. Our favorite index of the country’s global influence, compiled by Francesc Pujol of the University of Navarra, counts the number of times a country appears on the charts. economist.. ) These measures give the United States a great advantage.

Kudos to Mr. Subramanian’s prediction

For ease of use, Mr. Subramanian’s measurements give equal weight to all dollars in exports. However, some of US tech exports appear to give an economic “strangler fig” to China, which is more valuable than market value. Subramanian believed that China’s market share was expanding. GDP And trade can quickly raise its currency to a rival to the dollar. But the Chinese yuan has made little progress. This may be due in part to China’s tightening of capital controls, which Subramanian admitted. But he thought that if China adhered to such controls, it would keep the yuan cheap (by preventing the inflow of capital) rather than underpinning the yuan. Still, given the disappointing record of most economic forecasts, the author of the book deserves a handshake and a bow.

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Source: Economist


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