China has finally surpassed the United States to become the world's largest economy, according to International Monetary Fund figures, which are based on GDP measured according to Purchasing Power Parity (PPP).
With $17.6 trillion, China has surpassed the US as the largest economy, a position held by the latter since it overtook the United Kingdom in 1872.
The International Monetary Fund (IMF) measures economy in terms of market exchange rates and purchasing power basis, rather than nominal GDP. According to calculation based on PPP, China contributes more to global growth than any other countries.
The United States with the GDP of 17.4 trillion falls slightly behind Chinese economy, the World Economic Outlook says according to a News Week report.
Business Insider explains how the conclusion was reached: "Though a typical person in China earns a lot less than the typical person in the US, simply converting a Chinese salary into dollars underestimates how much purchasing power that individual, and therefore that country, might have."
The reported numbers are based on PPP, which makes adjustment because of the fact that goods and services are cheaper in countries such as China relative to the US. However, if it were not for these adjustments for living costs, the Chinese economy is still, in practice, smaller than that of the US.
After three decades of double-digit growth in China, economists around the world had long assumed that the country would one day, overtake the economy of the United States. Many experts believe that by 2020, China will surpass the US in terms of nominal GDP as well.