Move over America: China overtakes US as world's biggest economy (kind of)

Combined purchasing power of China's citizens now outstrips that of America according to IMF figures

James Moore
Thursday 09 October 2014 08:25 BST

China has finally overtaken the USA as the world's biggest economy - at least when the figures are adjusted for Purchasing Power Parity.

According to the International Monetary Fund the combined purchasing power of China's citizens now outstrips that of America's. And by the end of the year will China should make up 16.48 per cent of the world's purchasing-power adjusted GDP for a total of $17.632 trillion (£11 trillion).

The US, by contrast, will make up 16.28 per cent, or $17.416 trillion.

Purchasing power parity seeks to address the fact that while wages tend to be lower in “developing” countries than in mature economies like the US, the price of goods and servicing is also typically much lower.

The Economist's Big Mac Index, for example, quotes the price of the McDonalds staple in July at $4.80 in the US, but just $2.73 in China.

PPP, therefore, bases economic output on what a country's citizens can purchase, as opposed to an unadjusted GDP figure using market exchange rate, which is more often quoted.

However, the figure is controversial. It requires the comparison of a huge amount of goods and services, and is therefore a vast statistical undertaking that can only be conducted infrequently with estimates used during intervening periods. The methods used to collect the data have also led to controversy in the past.

When it comes the raw GDP data base on exchange rates, China will eventually also overtake the US if it carries on growing as it has, but that is still likely to take many years.

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