April 28, 2011 at 06:00 AM EDT
IMF Forecast: Can China Really Overtake the U.S. Economy by 2016?
According to the International Monetary Fund (IMF) "World Economic Outlook," China's output will surpass that of the United States in 2016 - only five years from now. But don't worry. The IMF calculation is based on " purchasing power parity " (PPP), which does not reflect real money. It relies on projecting China's stellar growth rates five years into the future. And it relies on Chinese official statistics, which are more than a little questionable. (In fact, after the media storm that resulted, the IMF apparently even soft-pedaled its prediction that China would leapfrog the United States in just five years; in a subsequent interview, an IMF spokesman reportedly said that, by non-PPP measures, the U.S. economy " will still be 70% larger by 2016 ." A recent World Bank forecast concluded that China could overtake the United States by 2030 .) This prediction - and the attention it continues to draw - serves a useful purpose, particularly if it's given the scrutiny that it deserves. For global investors with China-based holdings, it reminds us of that country's long-term potential - and the fact that such potential is always tempered by near-term risk. For the rest of us, it reminds us that China's ascendance is inevitable - in fact, is already happening - and will be with us for a long time, even if that Asian giant isn't immediately going to overwhelm the rest of the world. And for our elected leaders in Washington, the IMF report - false alarm or not - should serve as a wakeup call to attack and address the many problems that threaten this country's global leadership. How long will it really take for China to overtake the U.S.? Read on ...
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