China’s economy may be No 1, but it is still poor

China is often described as the world's second largest economy, soon to be the first, albeit with varying forecasts about when. In fact by "purchasing power parity" standards — adjusting for differences in the cost of living — China is already No 1.

These claims are correct but misleading. China is much poorer, relative to the US, than those numbers might indicate.

The key point is the difference between income and wealth. GDP and related numbers measure income flows: namely, the quantity of goods and services produced in a given nation in a given year. Wealth is a measure of the total stock of resources in a nation and is much higher. Furthermore, the gap between wealth and income is usually higher for nations that have been wealthy and stable for a very long time, such as the US

When it comes to national wealth, the US has a big lead over China, possibly as much as three times greater. That is a very rough estimate by Michael Beckley of Tufts University, drawing on data from the World Bank and the United Nations.

One reason for the greater wealth of the US is its superior natural environment. America has cleaner air and water, and a much better institutional and bureaucratic machinery for protecting its environment. America also has more water, and better access to it. Northern China in particular has very serious long-term water problems, and the US has done much more to secure water for its Southwest than China has for its North.

The US also has much more oil and gas than does China, and it is much less reliant on foreign nations for its energy supply. The greater availability of water in the U.S. also gives it greater long-term fracking capacity. The US also has more arable land than China, and is the world's largest food exporter.

Of course those food and oil outputs show up in current GDP, but the long-term value of those resources, including the geopolitical security they provide, goes well beyond what current GDP figures pick up. China also has very serious long-term soil pollution problems, which can be much tougher to remedy in the long run than air pollution.

So: If you had to choose the long-term resource endowments of either the US or China, the US has a clear lead.

Another part of the wealth gap stems from higher education. America has many of the world's leading institutions of higher education, whereas only a few universities in China, such as Beijing University and Tsinghua, contend for top status. Institutions such as Harvard, Princeton and MIT have built up brand names and reputations for credible research and free inquiry that China will find it hard to match, especially outside of the hard sciences.

America also has a much larger stock of nice homes and apartments than does China, and many of those structures have lasted for many decades. There is little doubt which real estate market you would prefer to be choosing from. China still needs to do a lot of building to accommodate the continuing influx of workers from the countryside. Chinese high-speed rail is wonderful, but in a low-wage economy, with per capita income roughly equal to that of Mexico, it is worth less than in, say, Japan.

The value of intangible corporate assets is yet another advantage for the US American brand names are known across the world, including in China, for good quality and superior service. China has nothing comparable to Coca-Cola, McDonald's or Google — though in the tech sector China shows some signs of catching up. Global consumers still have a greater hunger for American products, and that advantage probably won't go away soon. Yes, Chinese food is much beloved around the world, but the advantage is captured not so much by China but by Chinese emigrants.

An analogy may be helpful: Comparisons of two individuals, such as Bill Gates and Warren Buffett, don't focus on how much money each made this year. Instead they look at their wealth — that is, the accumulated total of their past incomes, minus expenditures of course. And so should it be for nations as well.

None of this is to say that America can relax or ignore the challenges presented by the rise of China. But any honest comparison of the two nations should look at all of the evidence — and a fuller accounting places America squarely in the lead.

Disclaimer: This article first appeared on Bloomberg.com, and is published by special syndication arrangement.