Big Mac Index

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For the past 20 years, if not longer, economists, journalists, commentators and ordinary people like me have been speculating about when China will overtake the US and become the largest economy in the world. With a population 4.7 times larger than America’s, and an increasingly productive workforce, this day has been fast approaching and, with the economic effects of the Covid crisis still unknown, it could happen sooner than we think. America has been the No. 1 economy since at least the 1920s, so this is an important moment in living memory.

The most recent predictions I’ve found suggest that those of us who are still around in the year 2027 will be able to tell our grandchildren that we witnessed this once-in-a-generation event but, according to the Economist’s “Big Mac Index’, it may have already happened, at least in Purchasing Power Parity (PPP) Terms. 

The logic goes: “In 2019, China’s workers produced over 99trn yuan-worth of goods and services. America’s produced $21.4trn-worth. Since 6.9 yuan bought a dollar last year, on average, China’s GDP was worth only $14trn when converted into dollars at market rates. That was still well short of America’s. But 6.9 yuan stretches further in China than a dollar goes in America. One example is the McDonald’s Big Mac. It costs about 21.70 yuan in China and $5.71 in America. By that measure, 3.8 yuan buys as much as a dollar. But if that is the case, then 99trn yuan can buy as much as $26trn, and China’s economy is already considerably bigger than America’s”.

With China’s economy expected to grow by 2% to 3% this year, and America facing a recession, watch out for new predictions of when China becomes the new No. 1 in actual terms.


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