China Is Not the World’s Largest Economy

Fraser Howie explains the flaws of the purchasing power parity methodology and why the U.S. is still the world’s economic leader
China Is Not the World’s Largest Economy
Laborers work in a shoe factory in Jinjiang, south China's Fujian province on Sept. 17, 2013. STR/AFP/Getty Images
Valentin Schmid
Updated:

In 2011, most people still thought China, as a nation, had less debt than Europe or the United States because of its relatively low government debt levels. Then came Fraser Howie’s seminal book “Red Capitalism,” one of the first books to expose the debt machine within the Chinese banking system and the risks of the debt-filled growth model.

After a six-year-stay in China, Fraser now lives in Singapore and still has more than a few things to tell us about China and its economy. 

Can You Explain Why Some People Think China is Already the World’s Largest Economy?

There is a huge assumption about the purchasing power parity principle these people use and it is usually not stated. It’s underlying the whole principle: The only thing that is different in the economies about the goods and services within is the price and not the quality.

You can get a haircut in Beijing for 5 yuan (US$.80) or 10 yuan (US$1.60) yet in New York it’s $20. Well actually on Fifth Avenue it’s $75 and in Brooklyn its $25. So are you going to have purchasing power parity between Brooklyn and Manhattan as well?

Valentin Schmid
Valentin Schmid
Author
Valentin Schmid is a former business editor for the Epoch Times. His areas of expertise include global macroeconomic trends and financial markets, China, and Bitcoin. Before joining the paper in 2012, he worked as a portfolio manager for BNP Paribas in Amsterdam, London, Paris, and Hong Kong.
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