China's GDP figures to be revised

[Jose]

Not only does the Chinese economy continue to surge ahead at a breathtaking pace, but it seems that its sheer size may have been underestimated, as reported in some newspapers today:

http://news.independent.co.uk/business/news/article333068.ece

http://news.ft.com/cms/s/1ed16fae-6b96-11da-bb53-0000779e2340.html

If, as these articles suggest, the offcial GDP figures will get revised to a value around 20% higher than the official current figure, this means that China's economy (even just the mainland without Hong Kong) is already the fourth economy in the world only behind the US, Japan and Germany.

I wonder how long it will take China to become the largest economy in the world. Doomsayers have been proved wrong all along, and it is widely believed that the renminbi is grossly undervalued. The reality is that China's economy continues growing, its economic figures are being revised to higher values, and its currency can only move higher. Put these three factors together and it wouldn't be surprising if China dumbfounds sceptics once more and overtakes Germany, Japan and even the US sooner than even the most optimistic experts expect.

[wushijiao]

Although China's growth is amazing, and seems to show no signs of slowing, I think it will be a while before China becomes the largest economy in the world. The US's GDP in 2004 was 11.75 trillion (according to a CIA estimate). China's is 2 trillion (as the Independent pointed out).

Also, the US economy grew at 4.3% in Q3, which is pretty good for a developed economy.

Anyway, I suppose it would be easy enough to do the math (assuming I knew how to do math ).

If America starts at 11.75 trillion and grows at, say, 2% a year, and China starts at 2 trillion and grows at 8% per year, how many years will it take for China to oversome the US? Anyone?

Of course, that is such a long period of time and there are so many economic, social, and political variables that the equation is probably useless, but still interesting.

[bhchao]

Of course, that is such a long period of time and there are so many economic, social, and political variables that the equation is probably useless, but still interesting.

That is a good point. Political uncertainty and social stability will certainly play a factor in whether China can sustain this phenomenal growth rate.

I still think the US will remain the largest economy in the world for a long period of time, well past the first half of this century, while China will surpass Japan as the world's second largest economy.

[Quest]

If America starts at 11.75 trillion and grows at, say, 2% a year, and China starts at 2 trillion and grows at 8% per year, how many years will it take for China to oversome the US? Anyone?

That's fast! Converge in 31 years.

[Quest]

More interesting would be to look at purchasing power parity (ppp adjusted): China stands at $7.262 trillion (2004 est.) according to the CIA Factbook.

Convergence occurs in less than 9 years! or 7-8.. since 2005 is about to end.

[Jose]

I don't know much about economics, but I think there is a flaw in this "simple maths" argument. Basically, we're comparing apples and oranges here, because China's GDP is measured in renminbi, not in US dollars. The current 1.6 trillion dollar figure is based on converting the renminbi value at a given exchange rate.

But the increasing power of China makes its currency more and more attractive internationally, and this means that its relative value to the US dollar will probably grow in the near future. Just imagine what would happen if the renminbi were to appreciate to twice its current value. All of a sudden, China's GDP would be 4 trillion dollars. Now this sort of change in the exchange rate won't happen overnight, but it could perfectly well happen over a period of 10 or more years, and this factor must be combined with the growth in GDP. Because exchange rates can be very volatile, these predictions are difficult, and not a simple arithmetic problem of percentages.

The idea that the renminbi will strengthen appears to be supported by history. Historical precedents show that when a country becomes a superpower the relative value of its currency grows. One British pound was worth four US dollars at the beginning of the 20th century, when Britain was a global superpower. Several decades later, a pound was worth less than two dollars. I think the German mark and the Japanese yen also strengthened considerably during the fifties and sixties, which explains how the GDP per head of these countries became so high barely three decades after the devastation of the Second World War.

Of course, the profound transformations that China is undergoing at present make it very difficult to know what will happen in China during the next few years. But it seems to me that the fundamentals of its economic growth are sound, and that its fate as the economic superpower of the 21st century is no longer a question of if, but just a question of how soon this will happen.

[bhchao]

Of course, the profound transformations that China is undergoing at present make it very difficult to know what will happen in China during the next few years. But it seems to me that the fundamentals of its economic growth are sound, and that its fate as the economic superpower of the 21st century is no longer a question of if, but just a question of how soon this will happen.

Therefore it is essential for China to maintain peace with its Asian neighbors and the USA in order to preserve an environment conducive to economic growth. Another factor to consider is the issue of energy supplies. A disruption of energy supply will devastate the Chinese economy, especially considering that almost all of China's oil supplies pass through the Malacca Strait.

[gato]

We should keep in mind that China has four times the population of the U.S. and so even when its economy is the same size as that of the US, its per capita income will still be 1/4 that of the U.S. It's sobering to think it'll take another 30 years for the average Chinese to earn 1/4 as much income as the average American (assuming that China will grow four times as fast as the U.S. for the next 30 years).

[wushijiao]

Thanks for the math Quest.

I think one should perhaps be cautious about comparing countries via PPP (although it is kind of interesting to see). It seems more accurate to measure a country's economy in absolute terms because when a country buys something from another country, they have to pay the absolute market price, not some adjusted price.

It's funny. Every so often I'll hear a Chinese person say, "in the future, China will be one of the strongest countries in the world." I usually say, "China already is. It is one of the top five world economic powers, especially in international trade. It has a seat on the UN Security Council. It has the largest population. It has nuclear missiles and ICBMs; and therefore, China could, hypothetically speaking, destroy Japan or America or any of its own provinces in the case of a war. On top of that, China's economic, defense, and diplomatic clout is rising daily."

I sometimes get the feeling that people don't seem to think of themselves a belonging to a semi-superpower.

Another factor to consider is the issue of energy supplies

.

Did you happen to see this news today about China finding a huge natural gas deposit?

http://www.chinadaily.com.cn/english/doc/2005-12/15/content_503447.htm

[Outofin]

It's sobering to think it'll take another 30 years for the average Chinese to earn 1/4 as much income as the average American.

It's very hard to believe a country's GDP could increase at 8% over fifty years (if we count from 1980.) Let's just imagine that happened. If China's per capita is 1/4 of America, as a country, how to compare China with the US? That China, is like a half American, plus a portion of Europe, plus South Asia. This combination presents the China's future better, in term of population and average income. And it is under one government and within a free trade entity. That could be even more competitive than a US. Of course, this is just out of imagination, based on a doubtful over 50 years' 8% growth. But we can still put this way to see today's China. It's wrong to assume this is a economy with 1000-something GDP/capita.

[Outofin]

I sometimes get the feeling that people don't seem to think of themselves a belonging to a semi-superpower.

I think the inconfidence comes from the feeling that China often finds itself in a difficult diplomatic relations with other countries.

[bhchao]

Did you happen to see this news today about China finding a huge natural gas deposit?

http://www.chinadaily.com.cn/english/doc/2005-12/15/content_503447.htm

I do not find much of the information in a state-controlled newspaper reliable. Even if the information reported in the China Daily was true, I doubt the finding would significantly decrease China's reliance on imported oil; just like how drilling in the Arctic National Wildlife Refuge will not significantly decrease the US's reliance on imported oil.

Yet I support China being self-reliant on its own energy resources, just as I support the US to be self-reliant in the same way. However it will take time before that really happens. For example China recently signed a deal with Venezuela that will allow Chinese firms to co-develop oil fields in Venezuela and open them to investment. It is a good strategy in my opinion, one that shows Beijing's awareness of its vulnerability in the hands of the US in the event of a war. It also shows China's ability to develop countermeasures to protect its economy in case of an energy shutdown.

China is also drilling in the East China Sea, an area that is currently causing tensions with Tokyo. http://www.washingtonpost.com/wp-dyn/content/article/2005/10/21/AR2005102101933.html

And recently the US and China competed for oil resources in Kazakhstan, an oil-rich US ally where Chevron and Exxon are currently drilling. Kazakhstan and China just inaugurated an oil pipeline that will tranport oil from the region to Xinjiang. http://www.forbes.com/home/feeds/afx/2005/12/14/afx2393232.html

Beijing is fearful that the American military presence in nearby Afghanistan will potentially threaten oil supply from the region in the event of a war.

[Outofin]

Although GDP is just a vague number, which could be very much unreliable, its meaning can’t be underestimated. Let’s make some fun with GDP and Chinese-Forums.

When GDP per capita reaches… What happens on CF

$1000, CF opens

$1200, the Films forum starts drawing fans.

$1500, CF moves to a Chinese-made server, backed by Chinese-written software.

$2000, younger Chinese, speaking fluent English, with strong nationalism, gather in CF.

$3000, aside from the classic Teaching English in China, new forums open, like Researching in China, Headhunting in China, Preaching in China, Cooking in China, etc.

$4000, a Chinese language learner writes a jaw-dropping, eye-popping poem, in Chinese classic style, which shames away some Chinese native speakers.

$10,000, people question the existence of CF. "Why the hell we’re having this site? There’s no America-Forums site." Our CF staff, who are already too old and too rich, don't care about closing it.

[bhchao]

The statistical system in China has some flaws even though Chinese statisticians are highly trained. Therefore some economic statisticians point out that China's real GDP figures may be understated (could be unintentional), while others say that figures may be understated in an intentional manner to hide China's economic strength.

There are other economists who say that it is possible that local officials in China may have overstated economic figures to gain promotional advancement from Beijing.

This is just my stance, but I would be cautious about embracing these new GDP figures wholeheartedly.

[anthony_barker]

China's growth is impressive however, china's economic statistics are poor - and they are already overstated.

Typically gdp growth is 50% of energy usage growth - and right now in china that is about 10-15% per annum.

Check out lester thorow:

http://mitworld.mit.edu/video/220/

[Outofin]

Typically gdp growth is 50% of energy usage growth

If that alwasy holds, when China reaches today's American GDP, it will consume electricity 23 times more than America does today.

The lecturer also said something like "80% of China is rural China, which didn't grow in 1990s. So urban China must grow 50% so that the whole country could have 10% growth." If I didn't get him wrong, this is plain stupid. He used population percentage to calculate economy. The country side doesn't count 80% of the economy.

[Quest]

Reminds me of the knowledge and money equations.

Knowledge = Power

Time = Money

Power = Work / Time

Time = Work / Power

Money = Work / Knowledge

More knowledge => requires more work to get the same amount of money: 能者多劳

The richest people are the ones most willing to do work but also the least knowledgeable.

[wushijiao]

From the Economist (have to have a subscription):

The revision of China's GDP figures was of an order reminiscent of Mao's liberal adjustment of statistics to show his campaign was on target. Now, however, it is the higher figure that is the more credible one. Economists have long believed that China's GDP has been considerably understated thanks mainly to poor measuring of privately run services. The country's first economic census, launched in January, showed that in 2004 it was some 16.8% bigger than the previously announced figure of 13.7 trillion yuan ($1.7 trillion).

http://www.economist.com/World/asia/displayStory.cfm?story_id=5327842&tranMode=none

This would seem to make sense because the private sector now makes up at least 60% of GDP. Private business people have a strong interest to understate income so as to avoid bribing parasitic officials.

Also:

The survey also confirms some long-held suspicions about China's economic make-up: that its service sector is bigger than the one-third of GDP suggested by the old figures (the new data show more than 40%), that consumption is also higher and that investment and savings as a proportion of GDP are lower. This lot of figures look more sustainable than the old lot. But they are still only a best guess at the truth. And, at a sixth the size of America's, China's economy still has a bit of catching-up to do.

[anthony_barker]

All countries have a grey economy - there is a quote as well from the economistl regarding china's overreporting of production - in this case fish production. Official figures are still twice actuals.

After verifying that their model was able to predict the location of most high-catch regions of the world, they went on to create a global map of the difference between expected (or modelled) catches, and officially reported statistics. This revealed a shocking discrepancy. In China, a catch of 5.5m tonnes was expected in 1999; but the official figure was 10.1m tonnes.

When the pair replaced official statistics with estimates, the global catch showed a wobbly downward trend, shrinking by some 360,000 tonnes every year since 1988. And when they removed the catches of a single, highly fluctuating species, the Peruvian anchoveta, the data revealed a strong and consistent downturn, of 660,000 tonnes a year. In other words, contrary to official figures suggesting that the marine catch has been slowly growing for the past few years, it has in fact been in decline.

That the Chinese figures are unreliable is hardly surprising, since until recently Chinese officials were promoted on the basis of production increases. What is surprising is that such a distortion of global statistics might be possible. The FAO offers several defences. One is that these new findings, published in this week's Nature, are based on modelling, which does not prove anything. The suggestion that China might be cooking the books is not new. The FAO says it has been suspicious of the Chinese figures for the past six years.

http://www.economist.com/displaystory.cfm?story_id=885936

[Jack MacKelly]

China's global trade exceeded $1 trillion ($1.15 trillion) in 2004, but if considered a single unit, the European Union has the largest economy in the world with a GDP of 13,123,116 million USD equivalent PPPs. The EU economy is expected to grow further over the next decade as more countries join the union - especially considering that the new States are usually poorer than the EU average, and hence the expected fast GDP growth will help achieve the dynamic of the united Europe, but Europe is still divided by borders and politics. Chinese have the second largest in the world when measured by purchasing power parity but measured in USD-exchange rate terms, it was the 6th largest - however the most powerful economy is still the USA, the United States has the largest and one of the most technologically advanced national economies in the world.