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TheStreet Open House

Settle Down, China Isn't Overtaking U.S. Economic Power and Here's Why

Donald Lewis, former academic coordinator for the World Trade Organization's Regional Trade Policy Course for Governments of Asia-Pacific

"China is here to play ball and they understand it, and China needs to get up the value chain and it needs to become a real player here," Lewis said on the phone from near San Francisco. "It is not yet."

Lewis said what's surprising about China surpassing the U.S. in purchasing power parity is how rapidly it happened, and how even the most profitable predictors misjudged the jump.

Lewis said most economists were expecting this event to happen sometime in 2016, while other powerful banks -- Goldman Sachs around 2027, Citi around 2020, HSBC near 2022 -- and the World Bank (2030) guessed later time frames.

Fears are rising that China is facing a credit crunch, especially after issuing large credit lines following the 2008 global financial crisis. The banking/financial system is woefully unregulated when compared to the U.S. and Western Europe.

But while China's competitors attempt to follow rules set by the World Bank, IMF and WTO, the country doesn't exactly fit the mold of a model international citizen.

Providing access to credit will help transfer real wealth to the Chinese consumer, but China's rise also has huge implications for governance in the IMF and World Bank. For example, the IMF must determine if the renminbi will be added to the IMF basket of currencies, which would add greater weight to China in voting.

The World Bank's book-length research about the necessary reforms China must undertake to avoid the middle-income trap said the country must review its energy, environmentral and industrial policies. It must improve the fiscal system and accelerate the pace of innovation. And, as Lewis focuses on, China must seek beneficial relations with the world.

"And, of course, what are the consequences for the planet?" Lewis asked. "It's not really a full-fledged international economy yet, because they don't even have a convertible currency."

China's rise as the world's greatest economy by GDP and purchasing power parity and numerous other indicators is inevitable, these China experts agreed. But how it reaches these milestones will be critical.

-- Written by Joe Deaux in New York.

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