It's worth pointing out that this is in large part due to China's population, which is roughly four times that of the United States. Population can skew total GDP in a more populous nation's favor (e.g., Nigeria's GPD is larger than Norway's, but only because its population is about 35 times larger). In terms of raw 2013 GDP numbers from the IMF, the U.S.'s GDP was $16.77 trillion while China's was $9.47 trillion. But the population difference makes China's per capita GDP far lower than that of the U.S. America's per capita GDP is about $53,000 while China's is a mere $7000. Even in PPP terms, which is the focus of the article, China's per capita GDP is less than a quarter that of the U.S.

All other things being equal, if China had the same population as the U.S., their GDP would be about a quarter of what it is and they'd end up dropping to 7th place in raw GDP numbers, right in between the UK and Brazil. Conversely, if their per capita GDP were the same as the U.S., their total GDP would be four times that of the U.S.; if every other country's GDP remained the same, that would result in China generating half of the global GDP. China's population is stabilizing, but assuming they're able to keep growing their economy it would have to be through increasing the per capita GDP. But there are likely some serious obstacles to indefinite economic growth, not just for China but any nation, including resources needed to provide sufficient energy, good jobs, and a good standard of living for everyone, but in China's case especially authoritarian regimes almost never have truly advanced economies, certain extremely oil-rich nations like Saudi Arabia, Qatar, and the UAE being exceptions as said resource generates the vast majority of their GDP (if the rest of the world could and did ditch oil entirely tomorrow, it would cripple the economies of OPEC nations). It's probably no coincidence that OECD nations and nations listed as "advanced economies" by the IMF (both groups with significant membership overlap) are all multiparty electoral democracies. Before its dissolution the Soviet Union had the second-largest economy in the world in terms of total GDP, but its per capita GDP was something like a third that of the U.S. Assuming they have the resources needed and having an authoritarian single-party government doesn't prove to be an obstacle (or they democratize), then it's possible that China can keep narrowing the per capita GDP, but I think a good argument can be made that their current growth is unsustainable given current conditions. I don't think anyone can realistically expect any nation to indefinitely experience double-digit GDP growth every year. There are always limits to growth.

So, while China's GDP is large, it's not because they are as well-off as America economically. It's because there's over 1.3 billion people in China. In essentially every way that counts the U.S. is better off. The UN's Human Development Index ranks the U.S. at #5 while China is only at #91. 27% of Chinese people are living on less than $2 per day according to the World Bank, while in the U.S. it's a negligible amount. According to the World Bank the market capitalization of listed companies in the U.S. is five times larger. Even in terms that aren't purely economic, the U.S. is better off. Americans live longer and healthier. China is increasingly more polluted, with more deaths per capita from air pollution (Because who cares about clean air when you have an economy to grow? I doubt the CPC does.). China is a single-party authoritarian state, while the U.S. is a multi-party democracy; the Freedom House report gives America top ratings for political and civil rights, while China has consistently received very poor ratings. According to Corruption Perceptions Index, America's government ranks 19th least corrupt among 177 nations, while China only ranks #80. It's quite clear that the U.S. simply has a better overall economy, standard of living, and quality of life than China. China has a long way to go before they join the ranks of developed nations like the U.S., Japan, and the member states of the EU.

It's worth pointing out that this is in large part due to China's population, which is roughly four times that of the United States. Population can skew total GDP in a more populous nation's favor (e.g., Nigeria's GPD is larger than Norway's, but only because its population is about 35 times larger). In terms of raw 2013 GDP numbers from the IMF, the U.S.'s GDP was $16.77 trillion while China's was $9.47 trillion. But the population difference makes China's per capita GDP far lower than that of the U.S. America's per capita GDP is about $53,000 while China's is a mere $7000. Even in PPP terms, which is the focus of the article, China's per capita GDP is less than a quarter that of the U.S.

All other things being equal, if China had the same population as the U.S., their GDP would be about a quarter of what it is and they'd end up dropping to 7th place in raw GDP numbers, right in between the UK and Brazil. Conversely, if their per capita GDP were the same as the U.S., their total GDP would be four times that of the U.S.; if every other country's GDP remained the same, that would result in China generating half of the global GDP. China's population is stabilizing, but assuming they're able to keep growing their economy it would have to be through increasing the per capita GDP. But there are likely some serious obstacles to indefinite economic growth, not just for China but any nation, including resources needed to provide sufficient energy, good jobs, and a good standard of living for everyone, but in China's case especially authoritarian regimes almost never have truly advanced economies, certain extremely oil-rich nations like Saudi Arabia, Qatar, and the UAE being exceptions as said resource generates the vast majority of their GDP (if the rest of the world could and did ditch oil entirely tomorrow, it would cripple the economies of OPEC nations). It's probably no coincidence that OECD nations and nations listed as "advanced economies" by the IMF (both groups with significant membership overlap) are all multiparty electoral democracies. Before its dissolution the Soviet Union had the second-largest economy in the world in terms of total GDP, but its per capita GDP was something like a third that of the U.S. Assuming they have the resources needed and having an authoritarian single-party government doesn't prove to be an obstacle (or they democratize), then it's possible that China can keep narrowing the per capita GDP, but I think a good argument can be made that their current growth is unsustainable given current conditions. I don't think anyone can realistically expect any nation to indefinitely experience double-digit GDP growth every year. There are always limits to growth.

So, while China's GDP is large, it's not because they are as well-off as America economically. It's because there's over 1.3 billion people in China. In essentially every way that counts the U.S. is better off. The UN's Human Development Index ranks the U.S. at #5 while China is only at #91. 27% of Chinese people are living on less than $2 per day according to the World Bank, while in the U.S. it's a negligible amount. According to the World Bank the market capitalization of listed companies in the U.S. is five times larger. Even in terms that aren't purely economic, the U.S. is better off. Americans live longer and healthier. China is increasingly more polluted, with more deaths per capita from air pollution (Because who cares about clean air when you have an economy to grow? I doubt the CPC does.). China is a single-party authoritarian state, while the U.S. is a multi-party democracy; the Freedom House report gives America top ratings for political and civil rights, while China has consistently received very poor ratings. According to Corruption Perceptions Index, America's government ranks 19th least corrupt among 177 nations, while China only ranks #80. It's quite clear that the U.S. simply has a better overall economy, standard of living, and quality of life than China. China has a long way to go before they join the ranks of developed nations like the U.S., Japan, and the member states of the EU.

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

I have to object to this as economist!

GDP as a whole, should never be measured in PPP terms as it is simply meaningless. The entire economy of a country is only present in the world in nominal exchange rate parity. You don't exist in the global arena in YOUR prices. So, no, US is still the largest world economy, BY FAR.

However, GDP per capita should be measured in PPP terms as it is a proxy for income per capita for individuals who spend their money in the home country, with domestic prices. You shouldn't read too much into the PPP though, since the international imports will still be traded in international prices, not necessarily domestic. In essence, even if country A's GDP/cap PPP is equal to country B's, the country with higher NOMINAL GDP/cap (and higher prices) is still better off, with greater purchasing power in internationally traded goods!

So things are not as simple as they seem!

There's also the fact that China is cheating by artificially keeping their currency low.  That will eventually come back and bite them in their butts.

No sh*t! And US Treasuries pyramid is stable as ever?