Quality rather than size

Even if China's GDP does exceed that of the US one day, its per capita GDP and average income will still lag behind

According to a recent report by the International Monetary Fund, China's estimated GDP for 2014, if calculated at Purchasing Power Parity, is $17.6 trillion, higher than the $17.4 trillion of the United States. In other words, China will replace the US as the largest economy in the world.

That aroused hot discussion among Chinese media and netizens. Actually, in discussing the issue, we need to know the calculation method first.

In plain words, PPP means how much money one has to pay in one kind of currency when purchasing the same product; it is generally used to measure the actual purchasing power of the currency. For example, if the same hamburger costs 20 yuan in China and $5 in the United States, researchers conclude 20 yuan equals $5 in terms of PPP.

In calculating GDP this way they generally select a few representative commodities of different kinds. That's essentially why China's estimated GDP is calculated bigger than that of US: commodity prices are generally lower in China.

Such a calculation is not without problems because it assumes commodities are ideal models, which they never are.

Just as Chinese Vice-Minister of Finance Zhu Guangyao said at a recent forum, if calculated on actual market exchange rate, not PPP, China's estimated GDP for 2014 would be $10.4 trillion, far less than that of the US. Currently, the GDP of the US is $16.8 trillion, while China's is about $9.2 trillion, despite the fact that China's population is more than four times bigger. By 2019 (the end-point of IMF projections), the IMF's forecast for US GDP shows the US economy will be nearly 60 percent greater than China's, $23.4 trillion versus an estimate of $14.8 trillion for China. Kaushik Basu, chief economist of the World Bank, also said that the US remains the biggest economy when considering the market exchange rate of the yuan and the US dollar, and it would take a long time for China to surpass it.

Thus the big, bold headline "China becomes the world's largest economy" does not describe the reality. More importantly, decision-makers in China need to keep a cool head and realize that size is not everything when it comes to the economy; quality and efficiency are more important.