Home > China, Journalism and Economics > Has China’s GDP Already Surpassed the US GDP?

Has China’s GDP Already Surpassed the US GDP?

You’ll be hearing this a lot in the next few months:

It’s probable that the U.S. economy is no longer the world’s largest. New World Bank figures, notes economist Arvind Subramanian of the Peterson Institute, suggest that sometime in 2014 China will overtake the United States in gross domestic product — the production of goods and services.

But be careful to look for the measure the reporter is using. Samuelson doesn’t even bring up the idea of PPP until the fifth paragraph:

The technique used here (called “purchasing power parity”) compares the value of similar items in different countries in an effort to get a common baseline.

Even worse, he doesn’t point out that PPP is an adjustment to GDP at exchange rates. You can’t buy oil with PPP dollars. They aren’t real dollars. The fact that a haircut is “cheaper” in China is becoming less relevant as China becomes richer.

The irony in all this is that just as China’s GDP measured in PPP terms is surpassing the US GDP, this measure is becoming less relevant for comparison. Good reporters will be careful to explain the shortcomings of the measures they are using to compare the size of two massive and complex economies. Unfortunately, most of them won’t.

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