The statement that China has displaced Germany as the third-largest economy in the world in purchasing power parity terms is also wrong. China would be third in the rankings after the US and Japan if the GDPs of each country were to be converted into a common unit using average exchange rates, but this is an illegitimate procedure. Such calculations do not a yield a measure of relative GDP volumes because they assume, contrary to the fact, that the average price level in all countries is the same.

Mohamed Ariff’s argument might be right and might be wrong. The US clearly is the world’s largest economy and China is still a long way behind, not only in nominal terms but also in purchasing power parity (PPP) terms. There is no question about that.

However, there is a big difference between China’s nominal and PPP GDP relative to the US’. I think it is in this area that Mohamed Ariff appears to have got the basic fact wrong.

In PPP terms, I think most people rank China as the second largest economy in the world after the US in 2007, but quite a bit (60-80%) larger than Japan (US $I14.3, China $I7.8, Japan $I4.4, India 3.3 and Germany $I2.7, all in trillions according to CIA estimates). So it well deserves to be the second, unless it has suddenly fell to a hole in the last year and half compared to Japan. I beg it has not happen. For references, see: http://www.scribd.com/doc/16386220/World-Bank-World-GDP-2009-PPP, https://www.cia.gov/library/publications/the-world-factbook/rankorder/2001rank.html?countryName=China&countryCode=ch&regionCode=eas&rank=3#ch.

In nominal terms china’s GDP in 2008 was estimated to be $US4.2 trillion, compared to US’ $US14.3 trillion, Japan’s $US4.8 trillion and Germany’s $US3.8 trillion. So it is the third largest in nominal terms as opposed to PPP terms. See: https://www.cia.gov/library/publications/the-world-factbook/fields/2195.html?countryName=China&countryCode=ch&regionCode=eas&#ch.

If such facts, so easily available, can be got wrong what about the argument based on them?

Now let’s have a look at Mohamed Ariff’s argument about China’s economic clout. In terms of trade China ranks also as the top 2 and 3 in the world. In terms of exports, the top 4 were Germany, China, the US and Japan with exports estimated to be $US1.50, 1.44, 1.29 and 0.75 trillion respectively in 2008: China was similar to Germany but larger than the US. In terms of imports, the top 4 were the US, Germany, China, Japan, $US2.11, 1.23, 1.07 and 0.71 trillion respectively in the same year: China was about half of the US’.

China’s real GDP growth has been about twice of or higher than that of the US’ over the past decade or so. If assuming that relative growth trend continues for the coming years, it would not be difficult to know that China’s growth impact in absolute terms should be larger than that of the US’. And the gap or differential will be increasing as China’s size further increases relative to that of the US’.

So, while the US will be important to world economic recovery and growth given its size, China’s real impact is likely to be even greater in absolute momentum or growth terms. That is not illusion but a fact. Anyone who fails to see that is no different to see the existence of the sun in our solar system.

It is just as simple as that. End of the story, and period.