China's economic muscle 'shrinks'

Despite China's boom, tweaks are needed to keep it running smoothly

China's economy, the world's second largest, is not as big as was thought, a report by the World Bank has claimed.

According to the bank, previous calculations have overestimated the size of China's economy by about 40%.

The revelation came after the bank updated the way it calculated the country's gross domestic product (GDP).

The bank said the findings meant China would not become the world's biggest economy in 2012 as forecast. It also meant China was poorer than estimated.

This in turn would influence future aid and investment plans, the World Bank said.

China gains extra aid from international institutions and has asked for help in climate change talks because of its status as a developing country.

Adjusting figures

BIGGEST ECONOMIES US China Japan Germany India Source: World Bank

Based on the World Bank's new research, China's economy is now worth some $5.33 trillion (£2.64trillion). Despite the drop in size, the economy was still the world's second largest, the bank said.

The US, at $12 trillion, is the world's largest economy.

The method used for the calculations is called "purchasing power parity", and corrects for differences in prices, which are lower in China than in Western countries, for the same goods.

However, the figures show that average incomes in China are still just 10% of those in the US. China averages $4,091 per person, while average income in the US is $41,000.

MOST EXPENSIVE NATIONS Iceland Denmark Switzerland Norway Ireland Source: World Bank

Based on current exchange rates, China's economy is only half as big, at $2.24 trillion.

In previous years, economists have tried to adjust their figures to take into account local prices in developing nations because they were often significantly lower than those in more industrialised countries.

However, the bank said that many of the prices which were being used were out of date and gave distorted GDP figures.

This time it has used updated prices to create more accurate figures.

Global shift

In its report, the World Bank found that five nations - the US, China, Japan, Germany and India - accounted for nearly half of the world's total GDP.

But they were not amongst the five most expensive places to live, with that honour going to Iceland, Denmark, Switzerland, Norway and Ireland.

In Africa, the main drivers of growth were South Africa, Egypt, Nigeria, Morocco and Sudan, which accounted for almost two-thirds of the continent's output.