ABSTRACT
China’s rapid economic growth since 1979 has transformed it into a major economic power. Over the past few years, many analysts have contended that China could soon overtake the United States to become the world’s largest economy, based on estimates of China’s economy on a “purchasing power parity” (PPP) basis, which attempts to factor in price differences across countries when estimating the size of a foreign economy in U.S. dollars. However, in December 2007, the World Bank issued a study that lowered its previous 2005 PPP estimate of the size of China’s economy by 40%. If these new estimates are accurate, it will likely be many years before China’s economy reaches U.S. levels. The new PPP data could also have an impact on U.S. and international perceptions over other aspects of China’s economy, including its living standards, poverty levels, and government expenditures, such as on the military.
