Chart of the week: Is China really the world’s biggest economy?

Chinese GDP chart

China’s economy will surpass America’s this year, ending the US’s 142-year reign as top dog, according to figures from international statistics agencies under the auspices of the World Bank. But this doesn’t tell the full story.

GDP is usually measured at market exchange rates, whereby a country’s output is converted into dollars, and compared to the US’s.

In this study, GDP is expressed in purchasing power parity (PPP) terms: it makes adjustments to reflect that a dollar usually buys more goods and services in a poor country than in a rich one.

Money goes further in the emerging world, and so PPP boosts the relative size of poor countries’ economies.

But it remains an academic exercise. “China can’t buy missiles and iPhones in PPP currency,” says Tom Wright on WSJ.com. That’s why GDP is usually compared at market rates – by which standard China won’t surpass the US until 2025.

Merryn

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