China is expected to overtake the US this year as the world's largest economy in terms of purchasing power of money, according to a new report.
The United Nations' International Comparison Programme (ICP), conducted with the World Bank, found that China's purchasing power parity (PPP) was 20% higher than earlier thought.
Purchasing power parity is a technique used to determine the relative value of different currencies, and is recognised as the best way to compare the size of economies rather than using volatile exchange rates, which do not reflect the true cost of goods and services.
In terms of the US dollar, American economy is still far ahead of China.
Accordingly, China's economy was 87% the size of America's economy in 2011, and given the Asian country's strong growth in recent years, it is tipped to be on track to overtake the US by the end of 2014.
The latest figures, updated by the World Bank for the first time since 2005, also found that India has overtaken Japan to become the world's third largest economy.
The size of Indian economy almost doubled from 19% of the US in 2005 to 37% in 2011.
"The United States remained the world's largest economy, but it was closely followed by China when measured using PPPs. India was now the world's third largest economy, moving ahead of Japan," the ICP report said.
"The results indicate that only a small number of economies have the greatest shares of world GDP. However, the shares of large economies such as China and India have more than doubled relative to that of the United States."
The US has overtaken the UK as the world's largest economy in 1872. Having achieving unprecedented economic growth over the past three decades, China was expected to surpass the US economy in 2019, according to the International Monetary Fund.
"The figures revolutionise the picture of the world's economic landscape, boosting the importance of large middle-income countries," the Financial Times writes.
"The findings will intensify arguments about control over global international organisations such as the World Bank and IMF, which are increasingly out of line with the balance of global economic power."