China's economy smaller in new measure, still number two: study

The size of China's economy is overestimated by some 40 percent based on most current measures, but it is the world's second largest, the World Bank said Monday.
In a report ranking the world's economies, the World Bank said a more reliable method of estimation using "purchasing power parity" (PPP) shows a much smaller value than the earlier estimates which the Bank called "less reliable."
The study carried out by the World Bank and other partners was "the most extensive and thorough effort" to measure the relative size of 146 economies using the PPP method which strips out the effect of exchange rates, a Bank statement said. China participated in the survey for the first time and India for the first time since 1985.
While the economies of China and other developing countries appear larger using the PPP method compared to using market rates, the new estimates include more reliable data on goods and services in China. The Bank had in the past extrapolated figures on China using the purchasing power method, but the latest report is based on more data.
"These results are more statistically reliable estimates of the size and price levels of both economies," the Bank said. "The previous, less reliable, methods led to estimates of their GDPs (gross domestic product) that were 40 percent larger than the results of the new, improved methods and benchmark."
China still ranks as the world's second largest economy with over nine percent of world production, but that compared with 14 percent under the old methodology. India is the fifth largest with over four percent of the world total. That is down from six percent using the previous method but up from two percent using market exchange rates.
In the study, the United States still has the world's biggest economy with 23 percent of global output. That compares with 29 percent using market rates. Japan ranks third under the PPP method with seven percent of global output. The study said the survey "should not be used as indicators of the under- or overvaluation of currencies."