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China’s Economy Overtakes the U.S. as World’s Largest

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Participants holding flags and placards gather for the gay pride parade in Hong Kong on November 9, 2013. Philippe Lopez/AFP/Getty

China has overtaken the U.S. as the world’s largest economy, but only when it comes to purchasing power.

The International Monetary Fund (IMF), which measures countries in terms of market exchange rates and purchasing power parity (PPP), found that China contributes the most to global growth, the Financial Times reported Tuesday.

China gross domestic product is worth $17.6 trillion, while U.S. GDP is $17.4 trillion, with adjustments made for China’s low cost of living, according to the IMF’s latest World Economic Outlook.

According to PPP logic, prices of goods aren’t the same in each country, so when making adjustments based on a country’s purchasing power—and converting a currency into its dollar equivalent—China is beating the U.S.

As Business Insider explains, “Though a typical person in China earns a lot less than the typical person in the U.S., simply converting a Chinese salary into dollars underestimates how much purchasing power that individual, and therefore that country, might have.”

In April, the Financial Times’s Chris Giles predicted the Chinese economy would overtake the U.S. But the U.S. maintains the lion’s share in terms of the raw value of its currency, one area where China has some catching up to do.

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