Future thinking should be shared. With that in mind our team publishes insights weekly to help keep you in the (k)now.


Hewison Private Wealth - Insights
Hewison Insights
International Monetary Fund (IMF)

China: Emerging or Re-emerging?

Glenn Fairbairn
Director/Private Client Adviser
9 May 2011

Last week the International Monetary Fund (IMF) released the April 2011 edition of its World Economic Outlook. According to the report, China could overtake the United States as the world’s largest economy by 2016,  much sooner than economists had first predicted.

China, which has the world’s second largest economy at $11.2 trillion, will continue to grow rapidly over the next five years. By 2016, its economy could total $19 trillion.

Over the same period, the U.S. economy is forecast to grow far more leanly from $15.2 trillion to $18.8 trillion. At this time, China will make up 18 percent of the world’s economy whilst the United States will account for 17.7 percent.

Whilst the above forecast caught many by surprise and  set tongues wagging, it is important to consider the actual measure used to reach this assessment Many news reports failed to point out  that a lot depends on the  economic measures that are used to draw a comparison.

In its forecast the IMF measured economic size using purchasing power parity i.e. what your money can actually buy in any given economy. In short, this means that a bundle of goods should cost the same in China and the United States once you take the exchange rate into account.

Using an alternative measure, where the market value of goods and services is calculated, the IMF projects U.S. GDP in dollars will be $15.2 trillion this year while China’s will be $6.5 trillion, rising to $18.8 trillion and $11.2 trillion respectively by 2016. Under this measure, the US is still forecast to be around 40% larger than China by 2016.

Regardless of what measure is used, the reality is, China’s growth is burgeoning and most agree that at some stage over the next 20 years will overtake the US as the world’s dominant economy. What is not surprising is that, in many ways, history is repeating itself.

Hewison Private Wealth is a Melbourne based independent financial planning firm. Our financial advisers are highly qualified wealth managers and specialise in self managed super funds (SMSF), financial planning, retirement planning advice and investment portfolio management. If you would like to speak to a financial adviser on how you can secure your financial future please contact us 03 8548 4800, email info@hewison.com.au or visit www.hewison.com.auPlease note: The advice provided above is general information only and individuals should seek specialised advice from a qualified financial advisor. The views in this blog are those of the individual and may not represent the general opinion of the firm. Please contact Hewison Private Wealth for more information.