China-The World’s Largest Economy


China has now overtaken the US to become the world’s largest economy, according to the International Monetary Fund.

The method used by the IMF adjusts for purchasing power parity, explained here. The simple logic is that prices aren’t the same in each country: a shirt will cost you less in Shanghai than San Francisco, so it’s not entirely reasonable to compare countries without taking this into account. 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 Economist’s Big Mac Index is a great example of these disparities.

So the IMF measures both GDP in market exchange terms, and in terms of purchasing power. On the purchasing power basis, China has overtaken the US and become the world’s biggest economy.

By the end of 2014, China will make up 16.48% of the world’s purchasing-power adjusted GDP (or $17.632 trillion), and the US will make up just 16.28% (or $17.416 trillion).However,it’ll be some time yet until the lines cross over in raw terms, not adjusted for purchasing power. By that measure, China still sits more than $6.5 trillion lower than the US, and isn’t likely to overtake for quite some time.

How Well Off Would You Be In The UK?

How Rich Would You Have Been In The UKAfter migrating to the US(Link),migrating to the UK is a common aspiration among people the world-over.If you ever wondered what your life would have been like wealth-wise if you had migrated to the UK,just see where your projected earnings would have placed you as per the graph to the left.

Alternatively,you could adjust your Indian Income by a factor of about 11 (for purchasing power parity)to estimate how your current earning power in India compares to general incomes in the UK.That way you know how your current earnings would place you in the UK.

And do remember that the UK is the Old World unlike the US.So there is a lot more inherited wealth you will have to contend with.So mere high earnings will not automatically guarantee you a similar place in the wealth pyramid.

And if you are planning to migrate to the UK,use the graph to get a reality check.Pay packages worth tens of lacs in Rupees,might not necessarily improve your position in relation to the general population.

How Wealthy Would You have Been In America?

wealthymatters.comIn India,as in other parts of the world, many people believe that migrating to the US is a sure shot way to wealth.Ofcourse,given the exchange rates, earning in USDs, or for that matter in GBPs,Euros,CHFs,CADs,AUDs,SGDs might make a person very rich in rupee terms.But expenses to maintain the living standards a person might take for granted in India,such as house help will use up a large part of one’s dollar  earnings.Then the investment options available are entirely different and steeper  taxes eat into one’s wealth.

Here are a couple of calculators to help you see what you might be potentially worth in the US. .If you are worth more than the median figures the calculator throws out, pat yourself on the back for doing a good job.Moreover given a purchasing power parity of 16 know that your rupee equivalent will just stretch so much more in India.Add in the new opportunities opening up in a rapidly changing India,and perhaps by staying home you don’t have such a bad deal after all!

Of course it’s great if you can earn in USD et, al and spend in INR,and enjoy the best of all worlds!

%d bloggers like this: