Crowning the dragon: China will become the world's largest economy by the end of the year

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  1. NYCUA1K

    NYCUA1K Gold Member

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    The Economist:

    UNTIL 1890 China was the world’s largest economy, before America surpassed it. By the end of 2014 China is on track to reclaim its crown. Comparing economic output is tricky: exchange rates get in the way. Simply converting GDP from renminbi to dollars at market rates may not reflect the true cost of living. Bread and beer may be cheaper in one country than another, for example. To account for these differences, economists make adjustments based on a comparable basket of goods and services across the globe, so-called purchasing-power parity (PPP)...More...
     
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  2. NYCUA1K

    NYCUA1K Gold Member

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    This story is actually quite nuanced and, as usual, the NYT has the goods that tells it like it is...
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    By One Measure, China Set to Become Largest Economy

    For years, Americans have told Gallup pollsters that China was the world’s pre-eminent economy. They were mistaken. The United States has held that spot for more than a century. A new report suggests they may soon be mistaken no more.

    New data released on Wednesday by the International Comparison Program, a World Bank body, appeared to suggest that, by one measure, China is on track to overtake the United States this year as the world’s biggest economy, years sooner than many economists had previously forecast.

    The group compiles gross domestic product figures from 199 countries and then attempts to estimate the size of economies on the basis of purchasing power parity, or P.P.P., a measure that seeks to determine the comparative size of an economy after adjusting for price differentials and the local buying power of a currency. Generally, prices are lower in developing countries, so a dollar or rupee or renminbi there can buy more goods and services than in expensive developed countries such as the United States, Japan or Germany.

    By this measure, China’s economy stood at $13.5 trillion as of 2011 — the base year for the data in the new I.C.P. report. That is nearly 90 percent of economy of the United States, which was estimated at $15.5 trillion on a P.P.P. basis. The 104-page summary report also showed that by 2011, India had overtaken Japan as the world’s third-biggest economy, with a G.D.P. of $5.8 trillion in purchasing-power terms. Given that China’s economy has grown much faster than that of the United States since 2011, it should eclipse the United States this year, according to an extrapolation of those figures based on growth projections from the International Monetary Fund.
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    By the exchange-rate measure, China has an economy barely half the size of the United States economy. The G.D.P. of the United States — in nominal terms, meaning not adjusted for inflation — was $16.2 trillion in 2012, twice as much as China’s $8.2 trillion, based on data from the I.M.F. Even with China’s higher growth rate, barring a collapse in the value of the United States dollar against the renminbi, China won’t overtake the United States until well into the next decade.

    And because China’s population is more than four times that of the United States, per capita incomes in the United States are more than four times higher than in China, even under the P.P.P. comparison. Using exchange rates, United States per capita incomes are more than seven times higher, Mr. Kuijs estimates.

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