US Vs Chinese Economics
Since 1871, America has enjoyed the top spot as the world’s biggest economy. With the change in economic trends China are on the neck of the United States. Research indicates that it will only be a few years before they take on that spot. Many people may not believe this, but the bitter fact could be true in just a few years. Statistics rank China, Asia Economic giant as the country with the leading economic growth averaging at ten percent since 1978. This has enabled them to raise their way over one and a half billion population from poverty. Asia is now the second largest economy in the world. Though China’s GDP is slightly above half that of America-bashing on the current market exchange rates, simple mathematics show that China is going to overtake America in a few years to come. Many people will ask a lot of questions as to how long it will take, but I think it is going to be soon.
Theories in international business
Various theories in international business point of the same notion that China is soon going to overtake the US and be the largest economy. The large population in China gives them an absolute advantage than America. The large population offers ready and cheap labor. This leads to a low cost of production in China as compared to America. Therefore, if America and China are producing the same goods, China will be at a better advantage because of the cheap labor. Likewise, the large population creates a ready market for the produced goods. Because the produced goods are cheap, people will tend to buy more as compared to America where the labor is costly thus cost of production will also be high. Again because of the market, China will tend to produce in large scale making the cost of production even cheaper.
Purchasing power parity
Because employees in America earn a better salary compared to employees in China, America has a superior purchasing power compared to China. The market exchange rates also favor America. However, with the rate at which China is growing, they are soon going to overtake America in the purchasing power chart. This will put them even at a better chance to overtake America to take the top spot of the largest economy in the world. When a country has a superior purchasing power, they are at an advantage of providing better consumer purchasing estimates. This leads to economic stability and thus even better growth.