China is set to overtake the U.S. as the world's number one economy, while India has jumped into third place ahead of Japan, according to a new study from the world's leading statistical agencies.
The 2011 International Comparison Program (ICP), which involves the World Bank, assesses economies based on purchasing power parity (PPP), an estimate of the real living costs. The results revealed on Wednesday paint a new and different picture of the global economy compared with the last update in 2005.
Relying on PPP does nothing to indicate China's weight in the world. Yes, Chinese peasants can feed a family of four on 50 cents per day--which means that by PPP they can match an American family of four feeding themselves for $30 (or whatever the exact figures are) as far as that spending measure goes, but that is irrelevant to the impact our economies have in the world economy. Europeans are far more interested in selling a day's worth of food to those 4 Americans than to those 4 Chinese.
There is certainly a place for factoring PPP into calculations--like in comparing defense spending where just feeding the Chinese army is much cheaper than feeding our army.
For actual GDP, in 2013 the United States had a GDP of almost $17 trillion while China's GDP was just over $9 trillion.
China is not about to have the world's number one economy.
And India (nearly $2 trillion) did not pass Japan (almost $5 trillion) by.
And let's not even start about per capita GDP.
UPDATE: Related. Even in per capita PPP GDP, China is well behind:
In PPP terms, the people of China have a lot of catching up to do. Their per capita income is about $10,000, which is one-fifth of the average American’s $49,800 income. It’s also lower than in Brazil ($14,639) and Russia ($22,502). At $4,700, India’s gross domestic product per capita is a tiny fraction of Japan’s $34,000.
Besides, worry more about whether we are killing our ability to produce GDP with poor government regulations that strangle incentive.
