FT Alphaville " Michael Pettis challenges The Economist, global economic bragging rights and sweet gig for Chinese band at stake At the end of last year, The Economist predicted that Chinese GDP would surpass US GDP at market exchange rates in 2018. Click table to enlarge There's always a touch of frivolity in making predictions such as these. But the article itself was a short and interesting, if overenthusiastic, assessment of how the two economies compare by various measures (though we would certainly quibble about the significance of Chinese patent numbers). Anyways, Michael Pettis isn't buying it: I have always been a little skeptical about the 2027 claim, not that it is implausible, let alone impossible. It is just that given how much we would have to assume about the sustainability of Chinese growth, about the likelihood of current GDP numbers not having been vastly inflated by an over-investment boom, and about the instable range of political outcomes, it seemed to me to be a prediction about as valuable as the world-beating predictions about the USSR in the 1960s or Japan in the 1980s. Still, this 2018 prediction deserves I think more than a little questioning - it requires that nominal Chinese GDP growth in dollars outpace nominal US GDP growth by 12% a year. And he wants to make a bet, even suggesting the stakes: I would like to bet that by the end of 2018 China will not be the largest economy in the world. If I win, perhaps The Economist could invite a very cool underground Chinese band of my choice to perform at their next big conference, whereas if I lose I could buy four-year subscriptions (student rates, please) to a group of Peking University freshmen. Everybody would end up feeling pretty pleased with themselves no matter who wins, right? So? Pettis has long argued that Chinese GDP is overstated because it's failed to account for misallocated investments and environmental degradation. If you want an overview, our podcast with him last year on these issues is here. Related links: I would like to make a bet with The Economist - Michael Pettis Is China rebalancing a) yet, or b) enough - FT Alphaville This entry was posted by Cardiff Garcia on Wednesday, March 28th, 2012 at 19:17 and is filed under Capital markets. Tagged with china, gdp, Michael Pettis, US economy.