Inside Story

Economic top dog: will China overtake US?

World Bank report forecasts major changes to the global economic landscape.

The United States could soon lose its status as the world’s largest economy. It has been the global leader since overtaking the UK back in 1872. Now a report released by the World Bank says it could soon lose its crown to China.

The World Bank’s International Comparison Program has used what’s called Purchasing Power Parity to compare economies. PPP rests on the assumption that goods in different countries cost the same, when the exchange rate is taken into account.

It ranked the US as the world’s largest economy with China a close second. India jumped above Japan, with Germany placed fifth. Russia, Brazil, France, the UK and Indonesia made up the top ten.

The last World Bank report in 2005 showed China’s economy at 43 percent of the size of the US Latest figures, using PPP and said to reflect the real cost of living, put that figure at 87 percent in 2011.

The International Monetary Fund expects China’s economy to have grown by 24 percent between 2011 and 2014, with the US expanding by 7.5 percent – that is fuelling predictions that China’s economy will overtake the US sometime this year.

So is the US on the brink of losing bragging rights to China as the world’s economic superpower? And what are the implications for both countries, and the world?

Presenter: Mike Hanna

Guests:

Marshall Mays – a director of the Asian Bond Market Forum, and a former adviser to the People’s Bank of China

Eswar Prasad – a senior professor of Trade and Policy at Cornell University, and former Head of the IMF’s China division

Fraser Howie – an Asian stock market specialist and co-author of “Red Capitalism: The Fragile Financial Foundation of China’s Extraordinary Rise