The significance of revised purchasing power parity estimates, which suggest that China’s total GDP may overtake that of the US as soon as this year, is not as great as some of the headlines imply. For a start, GDP in isolation is a poor measure of relative importance in the global economy, let alone in financial markets. To the extent that GDP is useful as a measure of economic power, comparisons using actual market exchange rates may be more meaningful. On this basis, it will probably be at least another ten years before China “overtakes” the US as the world’s largest economy.
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