Using the official exchange rate, China's 2010 GDP was $5.745 trillion compared to $14.6 trillion for the U.S. That means that, for each of the 1.337 billion people living in China, the GDP per capita would be $4,297, about the same standard of living as Indonesia or Fiji.
However, the cost of living in China is lower than in the U.S. because its currency is fixed at a rate to keep it lower than the dollar. As a result, it costs less to produce the consumer items exported to the U.S. Therefore, it's not really fair to compare China's production in dollar terms without taking its cheaper currency into account.
Purchasing power parity solves that problem. China's GDP, using PPP, is $9.872 trillion, which makes it the world's third largest economy, after the U.S. and the EU. That makes China's GDP per capita $7,400 per person. This is better, but still only on the level of Turkmenistan, Albania or Algeria. It's far less than the U.S. GDP per capita of $47,400. (Source: CIA Factbook)
Purchasing power parity is calculated by determining what each item purchased in a country would cost if it were sold in the U.S. These are then added up for all the final goods and services produced in that country for that given year. The measure is difficult to compute, as a US dollar value has to be assigned to everything, even if it's not produced in the U.S. (for example, the value of an ox-cart or non-US military equipment). For many developing countries, the PPP is estimated using just a multiple of the official exchange rate (OER) measure. For developed countries, the OER and PPP measures of GDP are more similar, since their standards of living are closer to the U.S.
