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China's economy not as mighty as thought

The World Bank said the economies of China and India are about 40 percent smaller than earlier estimates. China ranks as world's second economic power after U.S.
/ Source: The Associated Press

The World Bank said the economies of China and India are about 40 percent smaller than earlier estimates after it revised calcuations using consumers' relative purchasing power to measure economic might.

The new figures released by the World Bank on Monday differ from conventional gross domestic product figures, which are calculated by simply converting local statistics into U.S. dollars — but don't take into account the wide variations in the purchasing power of a dollar from country to country.

A dollar converted into 7.4 yuan will generally buy more food in China, for example, than it would buy in the U.S.

The bank's latest revision under its purchasing power parity method, based on updated data, shows that India and China — two of Asia's fastest-growing economies — are about 40 percent smaller than originally thought.

"While PPP is not useful for commercial purposes, it is far and away the best measure of a country's standard of living," the Carnegie Endowment for International Peace commented on the report.

By the new figures, China is ranked the world's second-largest economy, with its gross domestic product accounting for 9.7 percent of the world total, behind the U.S., which accounts for 23 percent, it said. Earlier estimates based on older data said China's economy accounted for 14 percent of global GDP.

Japan was No. 3, Germany was ranked fourth, and India came in fifth, with more than 4 percent of total world output.

Together, those five countries account for half of world economic output, the Washington-based bank said.

"These results are more statistically reliable estimates," the World Bank said in a statement. "It was the most extensive and thorough effort ever to measure PPPs across countries."

Still, the report noted that PPP estimates, like all statistics, are subject to errors and should be treated as approximations.

Under the new estimates, the number of Chinese living on less than $1 a day — a widely used benchmark for poverty — is nearly 300 million, according to the Carnegie Endowment for Peace. The earlier estimates put that figure at 100 million.

However, World Bank President Robert Zoellick, in Beijing as he wrapped up a visit to China, cautioned that the new estimate also may be flawed in that the price benchmarks were collected from urban areas.

"One has to be extremely careful about trying to draw judgements about poverty based on these statistics," Zoellick told reporters in Beijing on Tuesday.

He said even more accurate measures would be based on the kinds of goods that China's poor majority would buy, which would be weighted toward food.

"We're working with the Chinese government to refine that work and as I think that will be out some time next year," he said.