Re-estimating the RMB’s Purchasing Power Parity: Where Does China’s Price Level Stand?
CHEN Shuhang, YU Fei, GUO Kai
Abstract: Our previous research finds that China’s actual per capita consumption volumes can reach roughly one-half of that of the United States. However, World Bank data show that China’s PPP-adjusted per-capita consumption is only about one sixth of that of the United States. One possible explanation is that existing PPP overstates China’s price level, thereby understating RMB’s purchasing power and China’s actual consumption.
Because price comparison is the foundation of purchasing power parity (PPP), this study tests our hypothesis by collecting multi-source price data that are closer to everyday market transactions, in addition to the World Bank’s Price Level Index (PLI). We reconstruct China–U.S. price ratios across major consumption categories—including food, clothing, transportation, and healthcare—and re-estimate PPP accordingly.
Our main findings are as follows.
