China passes the US in PPP GDP per Penn World Tables 7.1

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The Penn World Tables are one of the main official sources of purchasing power parity.

The China version 2 Penn World Table 7.1 lists a 3.37 conversion yuan to USD as the correct purchasing power parity conversion factor.

China ended 2012 with 51.9 trillion yuan GDP, which is 15.4 trillion USD at 3.37 conversion.
There is also the need to add $300 billion for Hong Kong and Macau’s GDP. Hong Kong and Macau were turned back over to China in the late 1990s.

The US GDP was about 15.8 trillion USD at the end of 2012.

Now 3 months into 2013, China-Hong Kong-Macau has passed the USA in PPP GDP using Penn World Tables 7.1.

Other economists and academics have calculated that China passed the US in purchasing power parity in the 2009-2012 timeframes.

Professor Feenstra will be leading the effort to produce the next generation of the Penn World Table GDP (PPP-based) estimates.

So when the next Penn World Tables 8.X version comes out with Feenstra input then it will show that China passed the US sometime in 2010-2012.

The Penn World Table 7 adjustments has China passing the US for leading PPP GDP in 2012 with 15.954 trillion in China versus the US 15.61 trillion.

Professor Feenstra will be leading the effort to produce the next generation of the Penn World Table GDP (PPP-based) estimates.

So when the next Penn World Tables 8.X version comes out with Feenstra input then it will likely show that China passed the US sometime in 2010-2012.

World Bank 2005 Price Comparison Flaw

The World Bank and the IMF use the same price comparison stats from a survey done in 2005. The China price comparison from the 2005 study was criticized for only focusing on the top twelve cities. This caused the 2005 study to record about a 38% drop in PPP GDP for China. This is like basing using prices on the costs in New York.

A research paper from the World Bank recognizes the flaw in the International Comparisons Program in 2005

Our results have a direct bearing on the debate over the causes of the substantial downward revision in China’s GDP arising out of ICP 2005. They suggest that at best one third of the revision attributable to the ICP stage 1 Asia-Paci c comparison can be explained by an excessive focus in the Chinese data on unrepresentative products and urban areas. The remaining two-thirds of the discrepancy may well be caused by the pre-ICP 2005 estimates simply overstating China’s (and India’s) GDP. Alternatively, problems with our data set could have caused us to understate the ICP stage 1 bias. … a larger rural-urban price diff erential, the lack of rural price quotes for China could have a bigger impact on its estimated GDP.

So the Worldbank recognized that they were at least wrong by about 13% of the 39% drop in 2005 for China and possibly more if the rural prices were lower by even more from the urban prices.

A paper Who Shrunk China? Puzzles in the Measurement of Real GDP by Robert C. Feenstra, Hong Ma, J. Peter Neary, D.S. Prasada Rao argue that IMF’s estimate of China’s GDP for 2005 was 50% too low. (37 pages)

Their analysis is important, not just because it is carefully done, but also because Professor Feenstra will be leading the effort to produce the next generation of the Penn World Table GDP (PPP-

This implies China’s 2010 GDP PPP exceeded $17 trillion and in 2012 will reach $20 trillion.

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