China's economy overestimated by 40 pct: World Bank

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Washington, Dec 18: India is the fifth largest economy in the world, while the Chinese economy, the second largest, is overestimated by 40 percent, according to a World Bank study that was based on each country"s purchasing power parity (PPP).

According to the World Bank study of 146 economies, China participated in the survey for the first time and India for the first time since 1985.
China still ranks as the world's second largest economy with over nine percent of world production using PPP, but that compared with 14 percent under the old methodology. Japan ranks third under the PPP method with seven percent of global output.

The study carried out by the World Bank and other partners was "the most extensive and thorough effort" to measure the relative size of 146 economies using the PPP method which strips out the effect of exchange rates, a Bank statement said.

While the economies of China and other developing countries appear larger using the PPP method compared to using market rates, the new estimates include more reliable data on goods and services in China.

The PPP method is still somewhat controversial among economists compared with the traditional market exchange rate methods.

Using market methods, Japan would be the second largest economy and China would rank behind Germany, roughly equivalent to the economies of Britain and France, according to the World Bank report.

In the study, the United States still has the world's biggest economy with 23 percent of global output. That compares with 29 percent using market rates. The study said the survey "should not be used as indicators of the under- or overvaluation of currencies."

Nariman Behravesh, chief economist at the research firm Global Insight, said the new report has only limited implications for public policy. Behravesh said the huge revision shows that PPP estimates must use a number of judgments that may be arbitrary.

ANI>

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