November 12, 2013

Next Month a new international price comparison study will likely boost China purchasing power parity GDP by about 20%

The results of the 2011 International Comparison Program (compares 1000 of prices between countries) will released at the end of 2013. It is believed that the new ICP round will, as far as China is concerned, reverse to some extent the results of the 2005 ICP round (which many believed was flawed). This would then imply that China’ GDP may suddenly jump by something like 20 percent. If indeed such results come out in December 2013, then even according to the Word Bank and Penn, which would be bound to use the new 2011 PPP numbers retrospectively, China is already now the largest economy in the world.

Data on gross domestic product (called now Gross Domestic Income) are available from three sources: the Maddison project, which is the only source for the long-run series of national GDPs, going back to 1820s; the World Bank or IMF annual data, going back to 1960; and Penn World Tables, produced periodically at the University of Pennsylvania, going back from their just-released version 8.0 to 1950 . All three sources produce GDP data in PPP (purchasing power parity) terms, which means that they adjust for differences in price levels between the countries. The easiest way to explain it is to say that PPPs try to account for each good and service using the same price for it around the world, so that a mobile phone, a kilo of rice and a haircut would each be valued the same in China as in the United States.

According to Maddison series, China’s 2010 (when the series ends) GDP is $PPP 10.7 trillion, and US GDP is $PPP 9.4 trillion. China overtook the US in 2009, thus ending a period that began around 1860, when US overtook….whom? China!, to become the number one world economy.

Several other countries that saw GDP PPP reduced in the 2005 numbers (India’s GDP was reduced by about 40 percent, Bangladesh’s by an incredible 48 percent, Vietnam’s by 31 percent, and Indonesia’s by 18 percent) could also see a recovery about about half of that loss when the 2011 numbers come out.

The GDP PPP boost will also mean that China's IMF/World bank per capita GDP PPP would not be $10,660 but about $12,800 in 2014.
China would have higher per capita GDP than Brazil in 2014 and would be around the level of South Africa in 2013. China would be around the level of Mexico and Turkey in per capita GDP PPP in 2020.

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