China's economy has overtaken that of the United States, but according to economists, this might be untrue if market exchange and PPP exchange rates are applied.
According to the International Monetary Fund, China will apparently nab the largest economy title from the United States if the purchasing power parity (PPP) is used. Computed until year-end 2014, China's economy will grow to $17.6 trillion, while the United States' will increase to $17.4 trillion.
However, economists say that in order to compare the economic standing of the two countries, data that is reported using a common currency--U.S. dollars--is necessary.
The comparisons must be done using market exchange rate and PPP exchange rate. The former, simply called exchange rate, is the rate of one currency when exchanged with another. This rate is affected by daily economic movements.
The latter is the value of one currency when used to purchase products and services in a country with a different currency. Experts use the so-called Big Mac Index, indicating that the said burger will cost differently from each country due to input costs, advertising and many other factors.
Hence, using the two rate comparisons, experts say that China remains behind the U.S. in terms of economic growth. Using market exchange rate, the U.S. economy was $16.2 trillion in 2013, while China's was $8.4 trillion.
Conversely, if the PPP exchange rate is applied, the U.S. economy would be about $17.6 trillion, while China's would be about $16.2 trillion.
The economic standing of China, based on current market rates, is 50 to 60 percent that of the U.S. Considering China's economic growth, it will overtake the U.S.' economy by 2020.
According to experts, in order for China to become the world's largest economy, the goverment must raise living standards and match it with high productivity. Industrialization and urbanization must be given focus.