Hold on China, US Still World's Top Economy by Main Benchmark

Call it another false alarm in the China-overtaking-the-U.S. saga. Notwithstanding the latest estimates from the International Monetary Fund, the U.S., the world’s largest economy is still, well, numero uno.

China’s gross domestic product will climb to $17.6 trillion this year, while the U.S. grows to $17.4 trillion, IMF projections showed Tuesday. One major caveat: the comparison is based on purchasing power parity, which uses exchange rates that adjust for price differences of the same goods between nations.

“The U.S. remains the biggest by the more common, more widely accepted and in our view, more useful measure,” said David Hensley, JPMorgan Chase & Co.’s director of global economic coordination in New York. As for PPP, “it’s not quite the real thing.”

The PPP, used to differentiate how far money goes in each country, hardly reflects where the two nations currently stand vis-à-vis each other. Consider this: in 2013, U.S. GDP was at $16.8 trillion, way ahead of China’s $9.24 trillion before adjusting for inflation, which is the more commonly known measure of an economy’s size, World Bank figures show.

By looking at a PPP comparison, especially for developing nations, “you really exaggerate the importance of these economies,” because it misses the command that each has over the world’s resources and its influence over global activity, Hensley said. A preoccupation with this “competition or foot- race” captures little of the reversal in fortunes under way, he said.

Reversal of Fortune

“Emerging market economies had their day in the sun in the 2000s, and China was the epitome of those go-go days,” he said, as growth forecasts were often revised up, policies were aimed at boosting their economies and their markets offered a lot of potential. “Developed economies by comparison looked pretty stodgy,” said Hensley.

“The view we encounter now is a more sobering reassessment,” he said, adding that he prefers projections based on market exchange rates. “The U.S. has cleaned up its act. China still has a lot of work to do.”

Adjusted for population, China falls way behind even using the PPP data, and the U.S. is also no longer the king of the world. China ranks 86th in PPP GDP per capita, up 29 spots from a decade ago, while the U.S. slips one notch to 10th, according to Bloomberg calculations based on IMF data. The top three by this metric are Qatar, Luxembourg and Singapore.