[IP] Should this report be a source of worry for the US, India and the World?
Begin forwarded message:
From: Ram Narayanan <ram@xxxxxxxxxxxxxxxxxxxx>
Date: December 21, 2005 9:57:51 AM EST
To: dave@xxxxxxxxxx
Subject: Should this report be a source of worry for the US, India
and the World?
Dear Dave:
Looks like China is more than a miracle!
Should this NEW YORK TIMES report be a source of worry for the US,
India and the World?
Will it galvanize the rest of the world, especially India in
cooperation with the US, to significantly raise its growth rate to
match China’s?
That’s the trillion dollar question for the 21st century.
Cheers,
Ram Narayanan
US India Friendship
http://www.usindiafriendship.net
http://www.nytimes.com/2005/12/21/business/worldbusiness/21yuan.html
THE NEW YORK TIMES, DECEMBER 21, 2005
That Blur? It’s China, Moving Up in the Pack
By DAVID BARBOZA and DANIEL ALTMAN
Published: December 21, 2005
SHANGHAI, Dec. 20 - Many economists have long suspected that official
government statistics here provided only a shadow of reality.
With China’s announcement on Tuesday that its economy was
considerably bigger than previously estimated, economists and
financial prognosticators are scrambling to rethink their assessment
of China’s rise and its role on the world stage. China’s new figures
suggest that it probably has passed France, Italy and Britain to
become the world’s fourth-largest economy.
Some economists are even accelerating their timetables for when China
may eclipse the United States as the world’s biggest economy. With
the new figures offering a more expansive view of economic activity,
some said China could overtake the United States as early as 2035, at
least five years earlier than previous projections.
"We now have a new snapshot of the Chinese economy," said Hong Liang,
an economist at Goldman Sachs. "This is not slightly bigger - it’s a
significantly bigger economy."
China said it revised its economic data after a yearlong nationwide
economic census uncovered about $280 billion in hidden economic
output last year. The new output was the equivalent of an economy the
size of Turkey’s or Indonesia’s - or 40 percent the size of India’s
economy.
As a result, China’s gross domestic product for last year is now
estimated at nearly $2 trillion, not the previously reported $1.65
trillion. That translates into an adjusted increase of 17 percent,
making China the sixth-largest economy in the world in 2004.
With China expected to report another year of sizzling economic
growth in 2005, its economy may already be ranked No. 4, trailing
only the United States, Japan and Germany. Moreover, even after two
decades of very strong growth, China is still the world’s fastest-
growing major economy, expanding more than 9 percent over the last
few years.
The United States economy is still far in front, with a value of
about $11.7 trillion last year. And for all China’s fast growth and
its rapid ascension to the major leagues among national economies, it
remains a relatively poor country.
Even with the expected revision, China’s output per person will climb
to a little more than $1,700 this year. It ranked 134th in income per
person in 2003, according to the World Bank.
Though its statisticians are highly trained, China is still quite
secretive about its methods and means for gathering economic data.
This has long generated debate among economists, much as the Soviet
Union’s economic figures did: some economists think China’s figures
disguise weakness, while others think they hide strength.
The figures for China’s national accounts - the numbers that measure
gross domestic product, including spending and trade - are supplied
by its National Bureau of Statistics.
The bureau publishes several sets of statistics - some as often as
monthly - based either on its own estimates or upon numbers supplied
by China’s local governments. But those figures can vary widely.
Totting up regional gross domestic product in 2003, for example,
gives a figure of $1.6 trillion, 12 percent to 15 percent higher than
the bureau’s own estimates.
The discrepancy also underscores a difference in incentives.
Provincial and municipal authorities want to impress Beijing and
limit any embarrassments, as the delays in reporting bird flu cases
and the chemical spill in Jilin Province have shown.
Beijing worries more about its reputation in the rest of the world,
where accuracy is paramount.
There are other reasons that huge swathes of the Chinese economy are
unreported, said Frank Gong, the chief China economist for J. P.
Morgan Chase.
"The way they collect the G.D.P. is really from supply-side,
production-based statistics," he said.
Mr. Gong suggested that collecting data from the demand side - what
consumers actually spend - would be more telling.
In a system left over from when China was almost entirely a planned
economy, however, all the factories and supermarkets report their own
sales and spending.
"That’s problematic," he said. "The service part - the cash component
of the economy - can be omitted easily. That’s why the statistics
tend to understate the actual level of activity."
Economists say the new figures provide good news for China,
suggesting that the economy is healthier, more diversified and more
sustainable than previously believed.
The revised figures, for instance, show that a much stronger services
sector has emerged in the Chinese economy, taking some weight off
manufacturing. Dong Tao, an economist at Credit Suisse First Boston,
said Tuesday in a statement that China might still be underestimating
the size of its services sector by about $200 billion.
The new figures also relieve some worries that the economy was too
heavily dependent on investment and could overheat. And they show
that there are more small and medium-size companies in the country.
Stephen Green, a senior economist at Standard Chartered Bank, said
the new figures calm some fears about imbalances in the economy.
"It’s all good," Mr. Green said. "A bigger economy means all the
dangerous ratios, such as investment as a percentage of G.D.P., all
fall. And they are usually cited as showing the Chinese economy is in
danger or headed for a fall."
The new figures are also expected to affect government planners and
policy makers, altering things like monetary policy and inflation
forecasts, or how government officials allocate money in the economy.
On a more technical note, Jiemin Guo, a senior economist at the
United States Bureau of Economic Analysis, pointed out a fundamental
problem with China’s numbers.
Most wealthy nations use a changing base for their gross domestic
product series, to allow for differences over time in the basket of
goods and services that consumers demand: experts don’t want to use
the price of a 1985 home computer, for example, in calculating
today’s gross domestic product.
But China uses a fixed base for several years at a time, Mr. Guo
said, which results in a growing bias. Like the underreporting of the
service sector, this issue is especially serious, because it could
affect the accuracy not just of the gross domestic product but also
of its growth rate over time.
The statistics bureau has acknowledged several of these problems and,
unlike the old Soviet scorekeepers, it is eager to improve the
quality of its statistics.
The bureau is working with the World Bank to develop a plan for its
statistical apparatus, which would include reconciling the national
and local figures.
Ms. Hong at Goldman Sachs offered an analogy to explain why the new
figures were important.
"Does China have some structural illness or cancer, or is there an
error with the X-ray?" she asked rhetorically.
"The last few years, so many famous economists cited the very high
investment-to-G.D.P. ratio as a serious problem. Now it looks like
the X-ray machine had a problem, not the patient."
David Barboza reported from Shanghai for this article, and Daniel
Altman from Hong Kong.
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