Tuesday, December 13, 2005

China's GDP 15-18% Bigger Than Previously Thought?

Financial Times reports (Thanks Johan Norberg for the link )that China will next week announce a large upward revision of its GDP at between 2,000 and 2,400 billion yuan ($250-300 billion) for 2004, raising it with 15-18% from the previously estimated 13,650 billion yuan level. It will mostly be in the form of a bigger private service sector.

All statistics in all countries contains potential errors and should thus be taken with a grain of salts, although I for practical purposes still use them as errors can be in either way and accordingly the published numbers are therefore the best middling estimate so to speak.

China's statistics are widely considered more unreliable than that of western countries. However, this certainly does not mean that the Chinese economic boom is a statistical fraud. Quite to the contrary, Chinese statistics likely underestimate economic growth and the size of its economy. As I pointed out in my speech on the outlook for the world economy, various indirect indicators of production levels, like coal, oil and steel consumption or foreign trade indicates that production levels are in fact much higher than the official GDP numbers indicate. That is to some extent a result of the fact that the price level in China is much lower, but it is probably also a result of much business activity being neglected, as this revision show. And as Professor Song Guoqing points out in the article, more upwards revisions is likely needed.

This revision will also mean that China's dependence of its trade surplus with the U.S. is somewhat smaller than previously thought, although it is still dangerously high. It also means that the share of the economy going to private consumption rises, at the expence of the share going to the trade surplus, investments and government consumption.

UPDATE: Today, this rumour was officially confirmed, with the upward revision landing at 16.8%, to 16 trillion yuan in 2004 or slightly less than $2 trillion at current exchange rates. This means that even at current exchange rates, China surpassed Italy in economic size in 2004, and will surpass Britain and France this year (2005). Eventually, barring extraordinary events like nuclear war or a reversal to communism , China will surpass first Germany, then Japan and finally even the United States in economic size.


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