When the Center for Economics and Business Research (CEBR) announced in early January that China’s economy would surpass that of the United States “by 2032,” the reaction from the U.S. media was not surprising. The U.S. has been a dominant economic force in the world for a very long time. In fact, by the end of the 19th century, the U.S. economy already made up about a fifth of the world economy. It has been a given for most Americans that the U.S. economy would be the biggest and most dominant in the world, so the idea of a shift is startling and unsettling.

Putting Economic Measures in Perspective

However, the measures by which economies are compared differ widely from analyst to analyst, and some argue that the world’s major economies are all so big that it is nearly fruitless to compare them. For example, according to PricewaterhouseCoopers (PwC), China actually had the world’s largest economy in 2016, followed by the United States. Other analysts argue the European Union is the world’s largest or second-largest economy, placing the U.S. in third place.

These measures are dependent on a number of factors, including a country’s gross domestic product (GDP), net exports, cost of living, purchasing power, and annual growth. They may also be based on different lengths of time. As you might imagine, viewing an economy from a single year in isolation will yield very different results than evaluating a series of five years, 10 years, or even more. This is why an announcement that China will be the world’s biggest economy sometime within the next decade (or a little longer) could be a huge deal or not that big a deal at all. It all depends on how you are measuring economic growth and output and how other countries, mainly the U.S. and EU, are performing by comparison. Many analysts argue that these rankings change constantly and are more academic than utilitarian.

The Real Estate Outlook: Watch Closely, but Don’t Panic

For real estate investors, the bigger issue will be how the Chinese government decides to handle ongoing economic growth. For example, at present, China’s government has implemented a series of restrictions on the manner in which Chinese investors can invest outside of the country. The move comes as part of the country’s “five-year plan,” which dictates how the government will work to regulate and manage the economy and the financial systems in order to keep economic output high and asset bubbles in check.

With Chinese investors already backing off of international investments in 2016 and 2017, real estate markets with rising prices reliant on these investors could start to level off. This is not necessarily a bad thing, but if you are operating in such a market, you should definitely be aware and adjust your investing strategies accordingly.  The booming Chinese economy will likely create more international investors eager to invest in U.S. properties. The big questions for investors will be where they wish to invest, and how much capital they will have on hand with which to do so.

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  • Carole VanSickle Ellis

    Carole VanSickle Ellis serves as the news editor and COO of Self-Directed Investor (SDI) Society, a membership organization dedicated to the needs of self-directed investors interested in alternative investment vehicles, including real estate. Learn more at SelfDirected.org or reach Carole directly by emailing Carole@selfdirected.org.

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