[T]here's a reason that standard measures of GDP don't use the PPP conversion. As the Wall Street Journal's Tom Wright explains: "China can't buy missiles and ships and iPhones and German cars in PPP currency. They have to pay at prevailing exchange rates. That's why exchange rate valuations are seen as more important when comparing the power of nations." Standard GDP measures take these exchange factors into account. And here, China is doing about as well as one would expect.
Quick quiz: which country has the largest economy on the planet? If you said the United States, you're right, though the question became a little more complicated this week.
There were quite a few headlines this week about China "overtaking" the U.S. for the top economic crown, which seemed odd given how much larger our economy is and has been for many years.
But the World Bank decided to issue a report (pdf) this week evaluating countries by a different standard: the purchasing power parities of world economies, which seeks to measure "the number of units of a country's currency required to buy the same amounts of goods and services in the domestic market as U.S. dollar would buy in the United States."
And by this metric, China's economy is already 87% as large as ours, and given current growth projections, China will surpass the United States very, very soon.
But there's a catch -- and reason for skepticism.
Christopher Ingraham explained yesterday:
There are different estimates on GDP totals around the world, but I put together this chart based on International Monetary Fund figures published last year. The y axis is in trillions.
China is clearly an economic powerhouse, but it's not yet close to the United States. Indeed, our economy is still larger than China's and Japan's combined.
This is true whether you rely on data from the IMF, the United States, or the World Bank.
In other words, any American eager to declare, "We're #1" can still do so, and can continue to say it for the foreseeable future.
That said, what I think is a more interesting conversation is what the United States intends to do to stay on top, assuming that's still a national priority. Improving Americans' health care security is a big step in the right direction, but our reluctance to invest in education, infrastructure, and renewable energy may very well pose real trouble down the road.
China has 1.3 billion people, so it's probably only a matter of time before its economy trumps everyone else's, including ours. But if U.S. policymakers prioritized a long-term growth strategy, we could, in theory, keep our crown for quite a while.