USA Today told readers that Japan is hanging on for now as the world's second largest economy, ahead of China. This is just silly. While Japan does still rank second when its GDP is measured using a currency conversion standard (converting its currency into dollars at the current exchange rate), its economy is only half the size of China's using a purchasing power parity standard. This measure applies the same set of prices to all goods and services. In a wide range of categories China's output already exceeds that of the United States. It has more Internet users, twice as many cell phone users, produces almost ten times as much steel, and generates more college graduates with science and engineering degrees. It also has by far the largest accumulation of foreign reserves in the world. Anyone who thinks that China's economy is still smaller than Japan's badly underestimates its importance in the world.
--Dean Baker
