$28.82 trillion! China's GDP ranks first in the world, India's third in terms of GDP, but what about the United States?
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2024-06-06 15:15Published in Guangdong
In recent years, the mainland's GDP growth rate has been significantly faster than that of the United States, and in some years it was even more than twice that of the United States, but what I did not expect was that the GDP gap was getting wider and wider, and by the first quarter of this year, the mainland's GDP had fallen to about 60% of that of the United States.
Many people don't understand, what is the problem? In fact, it is very simple, the problem lies in the exchange rate conversion algorithm. The United States is the largest economy, and when countries compare their GDP, they convert it into US dollar GDP based on the exchange rate with the United States.
However, the exchange rate conversion method has great flaws, because it is affected by the economic policies of various countries and people's expectations, as well as capital transactions such as international credit and international investment. As a result, it is difficult for exchange rates to accurately reflect the true ratio of the purchasing power of different countries' currencies, and the real economic level of many developing countries is grossly underestimated.
The secret of the United States maintaining the world's No. 1 position is the hegemony of the dollar, which manipulates the dollar exchange rate by raising and lowering interest rates. In the past two years, the Federal Reserve has raised interest rates continuously, pulling up the dollar index, causing the currencies of all countries to depreciate, and the US GDP is even more ahead.
In view of the inaccuracy of the exchange rate conversion algorithm, the United Nations Statistics Office and the World Bank introduced the purchasing power parity method, also known as the International Comparison Project (ICP) method. It is to estimate the value of a purchasing power parity based on the prices of goods and services in each country, and then obtain the real ratio between the purchasing power of different countries' currencies, and use this ratio to convert GDP.
The latest round of the International Comparison Project (ICP) was due to take place in 2020, but was postponed to 2021 due to the pandemic. With 192 countries around the world participating, and the mainland is also actively participating, the Chinese Statistical Society has selected about 16,000 price points and collected price data for more than 1,000 specifications of products.
Just on May 30, the World Bank released the results of the 2021 International Comparison Project (ICP) round. Using the US dollar as a benchmark, China's purchasing power parity (PPP) value in 2021 is 3.99, which can be understood as the purchasing power of 1 US dollar in China is only 3.99 yuan, instead of the average exchange rate of 6.45 yuan that year.
In 2021, the mainland's GDP was 114.92 trillion yuan, and according to the exchange rate method, the mainland's GDP was 17.81 trillion US dollars. According to the PPP method, the mainland's GDP is 28.82 trillion US dollars, which is about 10 trillion US dollars higher than the GDP according to the exchange rate method. Under the PPP method, the mainland ranks first in the world in terms of economic aggregate.
Not only China, but most developing countries have seen a significant increase in GDP. India rose 257 percent to $10.96 trillion, ranking third in the world. Russia rose by 211% to $5.73 trillion. In addition, Indonesia increased by 198% and Brazil by 127%.
As the world's largest economy, the United States has a GDP of $23.59 trillion in 2021, ranking second in the world, and China's GDP is $5.23 trillion more than that of the United States.
According to the PPP method, The world's top 10 economies are China ($28.82 trillion), the United States ($23.59 trillion), India ($10.96 trillion), Russia ($5.73 trillion), Japan ($5.57 trillion), Germany ($5.15 trillion), Brazil ($3.71 trillion), France ($3.65 trillion), the United Kingdom ($3.54 trillion), Indonesia ($3.53 trillion), and developed and developing countries account for half each.
In fact, according to the purchasing power parity algorithm, as early as 2017, the mainland surpassed the United States to become the world's largest economy.
However, the PPP algorithm seems reasonable, but it also has a lot of flaws. Surveys of commodity and service prices are inadequately sampled, and the purchasing power of developing countries' currencies is clearly overestimated, leading to an excessively large increase in their GDP.
We also believe that China's GDP is overestimated, and some sub-items cannot objectively reflect China's actual situation, for example, the input price of construction products is lower than the output price, but the proportion of construction expenditure in China's expenditure-based GDP is much higher than the international average, which pushes up the mainland's GDP.
The Chinese Statistical Society said that PPP results are not official statistics, and PPP cannot replace the exchange rate, and PPP comparison results should be used with caution.
At present, the PPP algorithm has not been adopted by the international community and can only be regarded as a reference. If it is calculated at 1 US dollar to 3.99 yuan, the international trade pattern will change greatly, and other countries may not be willing to accept it.
Although the exchange rate conversion algorithm is not perfect, it is true that there is no better way to compare the GDP of different countries. What's more, there is a lot of room for maneuver in GDP.
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$28.82 trillion! China's GDP ranks first in the world, India's third in terms of GDP, but what about the United States? -
$28.82 trillion! China's GDP ranks first in the world, India's third in terms of GDP, but what about the United States? -
$28.82 trillion! China's GDP ranks first in the world, India's third in terms of GDP, but what about the United States?
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