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Chinese yuan will catch up to the dollar faster than we thought

China's economy is growing faster than the numbers suggest. It could overtake the United States as the world's biggest economy even more quickly than previously thought.

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Stringer/Reuters
An employee operates a camera to zoom in on the image of a Chinese one-hundred yuan banknote at a production exhibition in Wuhan, Hubei province. Karlsson previously argues that China would overtake the U.S. as the world's largest economy in 2024, but it might be sooner than that.

Ryan Avent notes that China's GDP deflator increases faster than its consumer price index, implying according to him an even faster real appreciation of the yuan.

As I've noted before, one should be careful in using aggregate price indexes for estimating competitiveness because they are composed of different goods and services in different countries.

One implication that is certain however is the fact that the Chinese GDP deflator grows so fast means that the relative size of China's economy is growing even faster than the published real GDP numbers suggests. This means that China's economy could overtake the United States as the world's biggest economy even faster than previously thought. I previously estimated that it would happen in 2024, but considering this factor, it seems that it will probably happen even sooner.

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