There is a history of China’s GDP at wikipedia from 1978 to 2012. This illustrates how inflation and currency exchange versus GDP growth differential factor into China move from US$216 billion to $8.2 trillion.
In the blue outline below is the column with growth in Chinese Yuan. This includes inflation but does not include changes in exchange rate to the US dollar. Some years had 22% and even 36% changes from the prior year.
In the red outline below is the column with growth of the Chinese economy in US dollars. Some years had 28-30% changes.
Note that in the last 7 years the chinese yuan change was always less than the US $ change. The chinese yuan was always getting stronger. Back in 1994 the chinese yuan change was 36% but the US$ change was -8.8%. This was because they dropped the exchange rate and more yuan were needed to get US dollars.
In the green outline is the columnn with the real growth of the Chinese economy. These are the numbers that are usually reported. This is without inflation and without exchange rate.
The US dollar of 1978 was not the same as the US dollar of 2012. The US economy had its own inflation. Usually China had more inflation. In the last 7 years, this meant that China had more inflation but still had a strengthening currency. So the relative change is related to the inflation differential between the two countries.
From 2000 to 2012, the Chinese economy went from 9 times smaller than the US economy to half as big. The 2013 numbers which are not shown show the Chinese economy being about 58% the size of the US economy.
The Economist has an online calculator for forecasting when China will pass the US.
You have to enter in the US inflation rate, Chinese inflation rate, the chinese exchange rate and the GDP growth for both countries.
Many people get confused about the catchup of the chinese economy and only consider the difference in US GDP and China GDP growth.
The Euro has had 20% moves relative to the US dollar in one year. The Japanese yen strengthened by 4 times over a couple of decades against the US dollar.
The Quantitative easing (printing $80 billion every month) or the US running trillion dollar deficits is the US flushing the value of the US dollar. The currencies that are run less recklessly then strengthen. The cheapening of the currency lowers relative prices and lets country get some more exports. But it raises commodity prices. A lot of the move in oil prices from $20 to 100 was because of the weakened US dollar. A lot of the move in gold from $400 to $1200 was the same weakening of the US dollar.
Around 2000 to 2005, the Euro went from 75 US cents to $1.38 with similar moves for the Canadian dollar and Australian dollar. The US was getting into wars and ramping up spending and deficits that were messing with its exchange rate.
China has been managing the exchange, so their currency only appreciated by 36% instead of %70 like many other currencies.
China still does not want to shock its exporting companies with moves that are too big. But China is getting close to export and import balance. As they shift to more consumption then they will be importing more than the export. It becomes more and more to their advantage to have a stronger currency so that commodities like oil, coal are cheaper to import. It becomes cheaper to buy foreign companies and technology and products. It will be China’s advantage to make its currency relatively stronger.
Whether China has 5% real GDP growth or 7.5% real GDP growth for the years from 2014 to 2023 would matter less for catching up in overall economic size relative to the US than an engineered 50% strengthening of the currency relative to the US dollar. China trades more with Europe, so there is more complexity in the exchange rates but this is a basic picture of it.
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Brian Wang is a Futurist Thought Leader and a popular Science blogger with 1 million readers per month. His blog Nextbigfuture.com is ranked #1 Science News Blog. It covers many disruptive technology and trends including Space, Robotics, Artificial Intelligence, Medicine, Anti-aging Biotechnology, and Nanotechnology.
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