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Chinese, Indian economies 'smaller than thought'

December 19, 2007 12:47 IST

The economies of China and India are 40 per cent smaller than previously thought, according to new estimates published by the World Bank this week.

The ranking of 146 economies by buying power in US dollars was based on the prices of 1,000 goods and services in what the World Bank described as "the most extensive and thorough effort ever to measure purchasing power parity across countries".

PPP, rather than market exchange rates, is regarded as a better measure of the relative cost of living, since it is based on goods and services households can buy with their domestic currency.

The new PPP estimates show a 40 per cent drop in the wealth of the Chinese people to $5.3bn, accounting for nearly 10 per cent of world output. China remains the world's second-largest economy but, in terms of per capita gross domestic product, it is only 9.8 per cent of the size of the US, according to the research.

Robert Zoellick, the World Bank's president said he was "not drawing any policy conclusions" about the new estimates, which suggest that there are hundreds of millions more Chinese living on the World's Bank's poverty line of less than $1 a day.

"We must be careful about drawing conclusions about poverty from these statistics", he said but added that the figures "could help Chinese leaders refine their development work."

Nevertheless, if China is less wealthy than previously thought, it could mean that those US policymakers who regard it as a political and economic threat, can relax.

For example, the US Government Accountability Office, using the old estimates, reported this year that China's economy in PPP terms would be larger than the US by 2012. The recalibration of China's economy suggests it will be many more years yet before China can rival the US in military or economic terms.

The World Bank said the shrinking of China's economy was due to exaggerated estimates based on less reliable data in the past. It was the first time that China had participated in the World Bank's International Comparison Program and the first time since 1985 that India had participated.

India's economy also shrank by 40 per cent, according to the tables, which ranked it the world's fourth largest economy, accounting for 4 per cent of output.

The world economy is also smaller than previously thought. Nearly half the world's output was produced by the US, China, Japan, Germany and India.

Measured by GDP per capita, the five richest economies are Luxembourg, Qatar, Norway, Brunei Darussalam, and Kuwait. Collectively, they account for less than 1 per cent of the world's output.

The five richest economies, measured by what households consume, are Luxembourg, the United States, Iceland, United Kingdom, and Norway, according to the World Bank data.

Scheherazade Daneshkhu in London