Noah Smith, Columnist

Bad Math Makes China's GDP No. 1

The IMF's conclusion that China's economy has surpassed the U.S.'s may be open to dispute, but not for the reasons cited by Beijing University professor Michael Pettis.

October 16, 2014 at 1:03 PM UTC

By Noah Smith

Noah Smith is a former Bloomberg Opinion columnist. He was an assistant professor of finance at Stony Brook University, and he blogs at Noahpinion.

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The International Monetary Fund has just reported that China, not the U.S., is now the world's largest economy. This announcement comes a few years earlier than expected, due to a revision in the IMF's estimate of average prices in China. Chinese inflation, it seems, hasn't been as high as we thought, meaning that more of the nation's growth has been real.

There are plenty of doubts surrounding the Chinese figures, of course. The latest price survey might be just as inaccurate as the earlier ones. Chinese provincial gross domestic product figures are notoriously overstated by job-seeking officials. And the calculation the IMF uses to adjust for price differences, called purchasing power parity, contains a lot of assumptions -- using market exchange rates, the U.S. still has the biggest economy.