How Does China Challenge the US Economy?

How Does China Challenge the US Economy?

It’s no surprise that the United States holds the title for the world’s top economy, but this may no longer stand with China in second place. The United States’ GDP is valued at $6.5T more than China’s which gives them quite the hefty advantage at face value. However, the International Monetary Fund (IMF) has recently taken Purchasing Power Parity (PPP) into account for China which allowed them to overtake the US as the world’s top economy. Through the PPP, the value of money is compared with other countries and taken into consideration. As the standard of living makes it more affordable to stay in China compared to the US, China’s monetary figure was then adjusted. An employed person in China would typically earn less than someone from the US, and this shows the disparities that the PPP is meant to solve. With these factors in place, the IMF currently values China’s economy at $17.92T, slightly higher than that of the US’ at $17.81T.

The two countries have come a long way from the early 1900s, a period that could be considered as their worst, economically, for them both. With two World Wars occurring one after the other, the United States trying to pick itself back up from the recession, and China having to deal with continuous invasions from Japan and the Nanking Massacre, it’s a wonder how both countries were able to build themselves up to become the top economic powers they are today.

Despite this, China still has a long way to go for the raw market value of their currency to overtake the US dollar. This is dealt with in other avenues, such as their investment in education. The Chinese government began to heavily fund education since 2012, with China investing 4% of their total GDP. In recent years, there has been a noticeable rise in teachers instructing at educational institutions, as well as young individuals enrolling in undergraduate, primary, and secondary schools. Ultimately, this becomes a great investment in the nation’s youth, as the enhanced training and education places these citizens on the path to become more skilled. This makes them an invaluable asset to the economy when they begin to work and contribute to the country’s GDP. Given that all goes well in this endeavor, China’s workforce would be more than capable to increase manpower and products than that of their US counterparts.

This could be the reason behind the growth in China’s annual GDP being larger than that of the United States. At 6.9%, China’s GDP growth is far larger than the United States’, which remains only at 2.4%. Only time will tell whether this annual growth rate could help China surpass the US’ economy. According to the Center for Economics and Business Research (CEBR), it is predicted that China will become the top leading economy in 2029. This information is not surprising given that the US growth rate is far lower than that of China’s, and their population is nearly a fourth of China’s as well.

China has also begun to cut back on its CO2 emissions by converting their operations to be sustained by renewable energy. Until now, China’s rise on the global economic scale has been based on their usage of fossil fuels, though have now begun to invest in renewable energy. The country has become the largest investor in renewable energy and has spent more than Europe and the United States combined. Now with US President Trump taking a step back by retracting the US’ participation in the Paris Climate Agreement and the world heading towards renewable energy, a decline for the US economy is on the horizon, with China stepping onto the forefront.