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Asean & Global Updates
POSTED | 17:34 PM | 08-10-2014

China beats US as world’s biggest economy

China just overtook the US to become the world's largest economy, according to the International Monetary Fund.

Basically, the method used by the IMF adjusts for purchasing power parity.

The simple logic is that prices aren't the same in each country: A shirt will cost you less in Shanghai than in San Francisco, so it's not entirely reasonable to compare countries without taking this into account. Though a typical person in China earns a lot less than the typical person in the US, simply converting a Chinese salary into dollars underestimates how much purchasing power that individual, and therefore that country, might have.

So the IMF measures both GDP in market-exchange terms and in terms of purchasing power. On the purchasing-power basis, China is overtaking the US right about now and becoming the world's biggest economy.

By the end of 2014, China will make up 16.48% of the world's purchasing-power adjusted GDP (or $17.632 trillion), and the US will make up just 16.28% (or $17.416 trillion):

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