While nominal GDP certainly has its problems as a means of comparing output, PPP GDP is not necessarily any better and in many cases is actually worse. The main reason for this is that the product mix of different countries at different development levels and different industrial compositions is, well, different. To compensate for this economists have to either make dramatic compromises on what constitutes the 'same product' or, more commonly, they simply leave out large swaths of countries' product mixes that they do not share with each other. This will obviously tend to be biased against richer countries since they make many things that only a handful of other countries are capable of making, and so much of their product mix will simply be left out of the PPP calculations, causing their GDP to be substantially understated. When using the PPP measure, then, you will get results like India's GDP being over double that of Japan or Germany's, or Russia's GDP being over 2.5x that of South Korea. So while nominal GDP does tend to overstate rich countries' output due to things like imputed rents and the effects of labor costs on exchange rates, PPP GDP tends to be just as bad, only in the opposite direction. China's economy relative to the US is certainly bigger than nominal measurements would suggest, but it is very likely that the PPP measure goes too far in compensating for this.
We do not know what is causing the decline in reinvested FDI earnings, and I can think of at least four plausible reasons why it might be happening, but have not yet seen convincing evidence for any of them. I would recommend against speculating much in any direction until we have more information.
gdp as a means to take pulse on a nation's wealth is flawed like measuring a shadow to figure out a person's size, shape and stature.
Its earlier modern form was conceptualized in the aftermath of great depression and subsequently during WWII to make sure war production going without bankrupting the country.
Is dopamine production a good measure of a country's wealth? How much bushels of wheat as true wealth as a physiocrats would do would be correct way to measure a country's wealth?
A country wealth, in a sense of true power and development, is really all about making a mix of a whole lot of useful stuff for yourself and others with lowest inputs possible, but not entirely for profit and greed only, that's what Smith wanted and wrote about all along.
That's why government should have a role to play to create equity, not equality, as no one or no nation is equal to each other but kind of have a moral duty to reciprocate in trade. That's how Smith as a moral philosopher had argued.
Hence theoretically you can call Chinese a true Smithians as the government is building infrastructure and alleviating poverty across all spectrum creating a sizeable amount of equity among the rich, poor and across diverse far flung regions.
Is it for profits? No. For equity, definitely yes.
He pretty much hated British empire and their behemoth mercantilism, hence finding a ready audience in revolutionary America, especially among the political class.
A moral philosopher and a trained rhetorical speaker, he mentioned "invincible hand" only once his only two books, as he must have learnt Shakespeare's words earlier in his life as a child of a wealthy family.
People like Jacob Viner, Frank Knight to Milton Friedman and George Stigler just run with this really odd obsession with this obscurely mentioned "invincible hand" and all these later inventions, based on this waving hand, of rugged individualism and greed is good are all worthy of Hollywood fictions.
