China Just Overtook The US As The World's Largest Economy

REUTERS/Shannon Stapleton Sorry, America. China just overtook the US to become the world's largest economy, according to the International Monetary Fund.

Chris Giles at the Financial Times flagged up the change. He also alerted us in April that it was all about to happen. 

Basically, the method used by the IMF adjusts for purchasing power parity, explained here.

The simple logic is that prices aren't the same in each country: A shirt will cost you less in Shanghai than in San Francisco, so it's not entirely reasonable to compare countries without taking this into account. Though a typical person in China earns a lot less than the typical person in the US, simply converting a Chinese salary into dollars underestimates how much purchasing power that individual, and therefore that country, might have. The Economist's Big Mac Index is a great example of these disparities.

So the IMF measures both GDP in market-exchange terms and in terms of purchasing power. On the purchasing-power basis, China is overtaking the US right about now and becoming the world's biggest economy.

We've just gone past that crossover on the chart below, according to the IMF. By the end of 2014, China will make up 16.48% of the world's purchasing-power adjusted GDP (or $17.632 trillion), and the US will make up just 16.28% (or $17.416 trillion):

IMF, Google Public Data Explorer Adjusted for purchasing power, China's economy is now the world's largest. It's not all sour news for the US. It'll be some time yet until the lines cross over in raw terms, not adjusted for purchasing power. By that measure, China still sits more than $6.5 trillion lower than the US and isn't likely to overtake for quite some time:

IMF, Google Public Data Explorter But in terms of the raw market value of China's currency, it still has a long way to go.

Source: http://finance.yahoo.com/news/china-just-overtook-us-worlds-090801574.html

Rejoice!!! This is a very happy moment in history! :D

They overtook us in PPP not raw GDP, but it is an omen of things to come. Now I see the big wait about launching in China. Those bastards knew. LOL

So, if we consider their purchasing power, where you can buy a shirt for a buck, then their economy is better?
Not sure how that works in anything other than a national level.
In the global economy a dollar is still just a dollar.

Because ten chinese haircuts buys them as many xboxes as ten american haircuts.

They can buy more with their dollar than the average person in the states can. Thats the big issue though....im wondering about how much the average person makes in China in general being that there are over a billion of them. It terms of raw GDP as a nation the US is still ahead. 

You have two types of GDP. 

a) PPP (Purchasing price parity) GDP

b) Nominal GDP

Developing nations like China and India are increasing their PPP by leaps and bounds, but they haven't surpassed our Nominal GDP.

Yep. Won't take long for the nominal to get overtaken. They are going to soar past our PPP as the years go by though.

Just posting a quick infograph of actual GDP(I know PPP is still important and this is a massive milestone regardless)

Other figures:

Japan: 4.902 trillion USD ‎(2013)

EU: $17.372 trillion (2013)

Now I know why Microsoft launched the Xbox One in China recently.

But not in terms of GDP alone. They still need a long time before they can catch up to America.