Is China's Economy 40% Smaller than Estimated?

AFP reports:

China's economy is 40 percent smaller than most recent estimates, a US economist said Wednesday, citing data from the Asian Development Bank and guidelines from the World Bank.

Albert Keidel, a senior associate at the Carnegie Endowment for International Peace and a former US Treasury official and World Bank economist, made the comments in a report published by the US think tank and in a commentary in the Financial Times.

Keidel told AFP he made the calculations based on a recent ADB report that made its first analysis of China's economy based on so-called purchasing power parity (PPP), which strips out the impact of exchange rates.

"The results tell us that when the World Bank announces its expected PPP data revisions later this year, China's economy will turn out to be 40 percent smaller than previously stated," Keidel wrote.

"This more accurate picture of China clarifies why Beijing concentrates so heavily on domestic priorities such as growth, public investment, pollution control and poverty reduction."

The ADB data was the first using purchasing power analysis, according to Keidel.

Based on this new analysis, he said "the number of people in China living below the World Bank's dollar-a-day poverty line is 300 million -- three times larger than currently estimated."

Keidel told AFP that under these calculations, China's gross domestic product (GDP) would have been roughly five trillion dollars in 2005, compared to some 12 trillion for the United States on the same basis.

This would still mean China's economy is moving ahead of Japan as the world's second largest economy, but might not overtake the United States until around 2030.

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