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December 17, 2007

World Bank updates purchasing power parity calculations

The World Bank has updated 1986 pricing data for China to 2005 pricing data and reduced by 40% the purchasing power parity size of China's economy.

Under the old calculation, China had a GDP of $8.8 trillion, about 15% of global GDP of $59 trillion. According to the new calculation, China's economy shrank by 40% to $5.3 trillion, which is about 10% of global GDP of $55 trillion.

In this survey, China submitted price statistics from 11 cities, which still leaves out rural areas -- and so may not be as accurate as possible. The report said it didn't believe the estimate of China's GDP was off by more than 5%.

Under the new calculations, India had 4% of global GDP, Russia had 3%. Their shares of global output were higher than they would be when measuring at market rates.


The $5.3 trillion PPP figure is still about 70% more than the straight exchange rate amount of about $3.1 trillion. The PPP exchange rate would be about 4.3 yuan to 1 USD. If the exchange rate were to head to the PPP rate then the yuan would continue to appreciate at 7.5% per year until about 2014/2015.

They caution:
The study said the survey "should not be used as indicators of the under- or overvaluation of currencies."

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