To the numerous ways investors can get exposure to China’s supercharged growth, here’s another: betting when it’ll elbow the US aside to become the world’s largest economy.
That’s the offer Ladbrokes rolled out on Monday, the day that economic data from Japan confirmed that China had overtaken its neighbour to become the world’s second-largest economy in dollar terms in 2010. The British bookmaker is offering punters odds of 6/4 on China’s surpassing the US to become the world’s biggest economy before 2020, which means that if you were to bet ￡10 and it happened you’d get back the ￡10 stake plus an extra ￡15. In other words, a return of 150 per cent. Even over nine years, those sound pretty good odds. In fact, China is closer than you think for Ladbrokes’ purposes, because the bookmaker is using a measure of gross domestic product that takes into account the costs of living in each country. The measure is known as purchasing power parity and one economist in the US who used it last year said China had already overtaken the US. Arvind Subramanian estimated that China’s economy grew to $14,800bn in 2010, compared with $14,600bn in the US. But this has been disputed by other economists. According to the IMF, China’s 2010 GDP was only $10,100bn in PPP terms. Ladbrokes says it is expected that “the Chinese economy will conquer the world with a net value of over $25,000bn” before the end of the decade. In nominal terms, which is the measure by which China just overtook Japan, China’s GDP in 2010 was $5,879bn, compared with $5,474bn for its neighbour. But that’s a long way off the size of the US economy, which was around $14,600bn last year. When beyondbrics asked if Ladbrokes had calculated its odds based on serious economic analysis, Alex Donohue, a spokesman, said: “Oh yes, it took them the best part of the morning.” Then, not wanting to seem glib, he quickly pointed out that is a long time compared to the few minutes it can take to calculate odds on a football match, where the bookies already know the subject inside out. He also stressed that the novelty and speciality betting division of Ladbrokes’ “odds compiling team” included people who’d studied economics and worked in the City. On closer inspection the bookie is not making a big call anyway. The odds on China surpassing the US between 2020 and 2022 are 7/4 – and they’re the same for it happening after 2023. From a ￡10 bet, that would return ￡27.50, compared with ￡25 from the alternative odds – a small difference. Donohue said “there wasn’t a standout opinion” on when China would reach the top spot. “It is a cautious approach?...?but when the market is live and money starts to come in, the odds will change.”