America is still in the race

MANY analysts have written about America's relative decline - relative to the large Asian economies, in particular the Chinese economy. No matter which measure of gross domestic product (GDP) is used, the gap between the United States and China has been narrowing over the last few decades.

On Dec 19, China's National Bureau of Statistics reworked the size of the country's national output, increasing it by 3.4 per cent. The Chinese GDP, at the prevailing rate of exchange, now stands at US$9.6 trillion. The increase was smaller than expected by several China-watchers. In 2004, the GDP was revised upwards by 17 per cent. The basis was the census of economic activities conducted in that year. In 2008, there was another census and another revision, this time an increase of 4.4 per cent. The adjustments have been at declining rates as the authorities believe that with each census and revision, the measurement of the size of the economy has arrived at its "true" level.

The same measurement methodology estimates the US GDP at US$16.7 trillion, 74 per cent larger than China's. But economists have believed for years that what the World Bank calls the "Atlas methodology" - which values national products at the official rates of exchange - does not produce accurate comparative data. The International Monetary Fund (IMF) working with the World Bank, its sister agency, developed a new way of estimating the value of country outputs. The purchasing power parity (PPP) evaluations use conversion rates based on the prices of selected common goods. This requires expensive surveys in all the countries included in the comparisons and, because of the costs involved, they are done infrequently, once every couple of decades.