WASHINGTON, Dec 17: The size of China’s economy is overestimated by some 40 per cent, but it remains the world’s second largest using a ranking based on purchasing power, the World Bank said on Monday.

In a report ranking the world’s economies for 2005, the World Bank said its updated survey using “purchasing power parity” shows a much smaller value for China than earlier estimates which the Bank called “less reliable.”

The study carried out by the World Bank and other partners was “the most extensive and thorough effort” to measure the relative size of 146 economies using the PPP method which strips out the effect of exchange rates, a WB statement said.

China participated in the survey for the first time and India for the first time since 1985.

While the economies of China and other developing countries appear larger using the PPP method compared to using market rates, the new estimates include more reliable data on goods and services in China.

The PPP method is still somewhat controversial among economists compared with the traditional market exchange rate methods.

Using market methods, Japan would be the second largest economy and China would rank behind Germany, roughly equivalent to the economies of Britain and France, according to the World Bank report.

The World Bank had in the past extrapolated figures on China and India using the purchasing power method, but the latest report is based on more extensive data.—AFP