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Is China Really More Economically Powerful than the United States?

by Michael Levi
May 14, 2014

A couple weeks ago the World Bank reported that the Chinese economy would pass the U.S. one by the end of this year. This led to rather breathless headlines from normally more sober observers (FT: China poised to pass US as world’s leading economic power this year). In an op-ed yesterday in the international New York Times, I argue that GDP is an awful measure of economic power, and explain why Chinese economic power is often less (though sometimes more) than meets the eye.

The op-ed is broad, but I’d like to think that its themes should help us think more intelligently about energy and climate.

In particular, the piece draws in part on thinking that developed while I was working on my recent book By All Means Necessary: How China’s Resource Quest is Changing the World with my colleague Liz Economy. The latest headlines about China compare its economy to the U.S. one using purchasing power parity. Yet when Chinese companies compete for resources abroad, whether through trade or investment, it’s transparently clear that what matters is Chinese wealth measured in international market terms. No one in Nigeria or Canada cares how much the money China offers for their resources can buy in Beijing.

The other big thing I learned while working on the book was how difficult it can be for Beijing to mobilize the country’s economic assets, even including state-owned firms that superficially would appear easy to control and direct. The reality is that just because Chinese entities might give the state power in principle doesn’t mean that they give it similar power in practice. One might draw a loose analogy to the United States: the U.S. government can occasionally harness the attraction of U.S. energy to geopolitical ends (for example by conditioning foreign acquisitions of U.S. firms and mineral rights on the behavior of the acquiring companies), but that’s normally difficult. (See U.S. natural gas exports and Russia/Ukraine.) To be certain, this analogy is ripe for misinterpretation – the Chinese government often has much more influence over state owned companies than the U.S. government has over private American firms (though see implementation of environmental safeguards for a place where that’s typically not the case). But it’s useful nonetheless.

I’m interested in any thoughts that readers have about the op-ed, and, in particular, about any other implications for energy and climate. Take a look here if you’re interested.

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