Experts See China as World's 4th Largest Economy - and Climbing
By DAVID BARBOZA and DANIEL ALTMAN
Published: December 20, 2005
SHANGHAI, Dec. 20 -- Many economists have long suspected that official government statistics were a slighter shadow of reality.
With China's announcement on Monday that its economy was far 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 has likely passed France, Italy and Britain to become the world's fourth-largest economy this year.
Now, some economists are even accelerating their timetables for when China might eclipse the United States as the world's biggest economy. With the new economic figures, some experts said China could overtake the United States in 2035, instead of 2040.
"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 on Monday after a yearlong nationwide economic census uncovered about $280 billion in hidden economic output in China last year. The new economic output was the equivalent of an economy the size of Turkey or Indonesia - or 40 percent of the size of India's economy.
As a result, China's gross domestic product for last year was nearly $2 trillion, not the $1.65 trillion that had previously been reported, and it 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, China's economy may already be ranked number four, trailing only that of the United States, Japan and Germany. Moreover, even after two decades of hypergrowth, China continues to be the world's fastest-growing major economy, jumping more than 9 percent over the past few years.
The United States economy is still far out in front, with a value of about $11.7 trillion last year.
Though its statisticians are highly trained, China is still quite secretive about its statistical methods and means of gathering data. The lack of transparency over its figures has generated a longtime debate among economists, much as did the Soviet Union's economic figures: some economists think China's figures disguise weakness, while others think they are hiding strength.
The figures for China's national accounts - the numbers that measure gross domestic product, including spending and trade - are supplied by the National Bureau of Statistics, the official keeper of most of China's economic statistics.
The bureau publishes several sets of statistics - some as often as monthly - based either on its own estimates or upon number 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 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 avian flu cases and the chemical spill in Jilin province have shown. But 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 likely to be unreported, said Frank FX. 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," Mr. Gong said.
He suggested that collecting data from the demand side - what consumers actually spend - would be more telling. But in a system left over from a time when China was more truly a Communist nation, all the factories and supermarkets report their own sales and spending.
"That's problematic," Mr. Gong 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 here 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 the manufacturing sector.
Dong Tao, an economist at Credit Suisse First Boston, said in a statement today that China may 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-sized companies in the country. Stephen Green, a senior economist at Standard Chartered Bank, said the new figures should calm some fears about imbalances in the economy here.
"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 policymakers here, altering everything from monetary policy and inflation forecasts to how to government officials allocate money to various regions and sectors of the economy.On a more technical note, Mr. Guo 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. Economists would not, for example, use the price of a 1985 home computer 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, since it could affect the accuracy not just of the level of 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, is eager to improve the quality of its figures. The bureau is working with the World Bank to develop a "master plan" for its statistical apparatus, which would include reconciling the national and local figures.
"The most significant implication of this is: Does China have some structural illness or cancer? Or is there an error with the x-ray?" said Ms. Hong at Goldman Sachs. "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."
Factoid: If Wal-Mart were a country, it'd be China's eighth largest trading partner, even ahead of Russia, Australia and Canada.
Just wait for another decade or so...
World War III (if you don't count our current "war" on terrorism") will be over oil... and with either China or Russia.
Good for them. There's also a fuckton more Chinese than French, Italians or British.
Its the Communist model on grand scale: quantity, not quality.