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Where is China in the world economy?

The International Monetary Fund (IMF) now rates the Chinese economy as the world’s largest economy, currently worth $17.6 trillion, just $.2 trillion more than the United States. The IMF calculated that using the purchasing power parity (PPP) which compares how much you can buy for your money in different countries. Money does go further in China than the U.S.A.

Without the PPP adjustment, China’s economy would only be worth $10.3 trillion. With a population of 1.36 billion people, China really should have the world’s largest economy. If you divide the value of China’s economy by the population number, China’s economy in effect, falls behind the likes of Turkmenistan and Suriname.

Last November, the IMF listed Chinese currency, the yuan (or the renminbi), as a world reserve currency for the first time, along with the dollar, euro, British pound and Japanese yen. The IMF reviews this inclusion every five years. The inclusion means that the IMF is formally recognizing the monetary reforms the Chinese government has taken over the last five years.

China has emerged as an international commercial power. In fact many have called China a trading super power. She is now the world’s biggest trading nation as measured by the sum of imports and exports. Chinese trade has just slightly surpassed that of the United States. For many countries around the world, China has become a leading trading partner.

China’s economic strength is a challenge to the traditional economic order. Economists and international politicians throughout the world are looking closely at the Chinese trajectory over the next decade to estimate its potential impact.

Because of the growing importance of the Chinese economy in the world, the recent downturn in the Chinese stock market is having global repercussions. Some say the sharp downturn in the Chinese stock market was an effort by the Chinese central bank to devalue the yuan and make export of Chinese products cheaper to encourage growth in its economy. But a cheaper Chinese currency will cause trade ripples throughout the world and may cause a whole chain of Asian nations like Japan, Korea and Vietnam to devalue their currencies to compensate. Many are calling this a potential trade war.

Vantage Compliance and Mitigation offer professional business consulting services in China and Asia. Please contact us to learn more.

If you are interested in knowing more about China, download the first free chapters  of my book here.

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