China Overtakes U.S. as Biggest Economy When Measured by Purchasing Power

China overtook the U.S. last year as the world’s biggest economy when measured in terms of purchasing power, according to Arvind Subramanian, senior fellow at the Peterson Institute for International Economics in Washington.

The size of China’s economy in 2010 was $14.8 trillion, compared with the U.S.’s $14.6 trillion, when accounting for the countries’ differing costs of living, Subramanian wrote in a note published yesterday, a week before President Hu Jintao visits Washington. So-called purchasing power parity calculates gross domestic product using exchange rates that adjusts for price differences of the same goods between nations.

Growth in the world’s most populous nation has averaged 10.3 percent a year over the past decade, nearly six times faster than the U.S. China was the biggest auto market for the second year running, created the world’s fastest supercomputer and was ranked the biggest user of energy in 2010.

A poll of Americans ahead of a summit of Hu and President Barack Obama next week, found some 47 percent said China is the leading economic power with 31 percent naming the U.S., according to the Washington-based Pew Research Center for the People and the Press. A February 2008 Pew Poll found 41 percent of Americans considered the U.S. the top economic power, with 30 percent naming China.

Prior Estimates

Subramanian said his calculations are based on new estimates of GDP that will soon be published by the Penn World Tables, which correct biases in previous estimates by the International Comparison of Prices project and the World Bank that underestimated China’s purchasing power.

Adjustments have also been made to take account of a different estimate for appreciation in China’s currency compared with that made by the International Monetary Fund, Subramanian said.

China’s GDP per capita, which reflects the average standard of living, would increase to $11,047 from the $7,518 estimated by the IMF in its World Economic Outlook, according to Subramanian’s calculations. That would still leave the U.S.’s GDP per capita 4.3 times higher than China’s, he said.

In nominal terms, China’s output in 2009 was 34 trillion yuan, or $5 trillion, at average exchange rates that year, trailing the U.S.’s $12.9 trillion.

--Nerys Avery. With assistance from Li Yanping, Kevin Hamlin and Mike Forsythe in Beijing. Editors: Brendan Murray, Lily Nonomiya

To contact Bloomberg news staff for this story: Nerys Avery in Beijing at +86-10-6649-7558 or navery2@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net

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