‘Epic’ survey makes China look better than ever

By Simon Wilson Dec 21, 2005

Simon Wilson

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Centuries after giving the world the abacus, it seems “China is still struggling with basic computation”, said Lex in the FT.

The Beijing government is set to announce next week that its estimates of China’s gross domestic product have been much too small. The National Bureau of Statistics is expected to revise the official GDP figure upwards by a massive 20%, some $300bn – “in effect adding on the equivalent of Turkey” and on present exchange rates just pipping the UK as the world’s fourth-largest economy.

The change is being made following China’s economic census this year, said Richard MacGregor, also in the FT – “an epic statistical survey involving ten million data collectors”. For the first time, officials have recorded and measured many street-level consumer businesses not previously picked up by GDP surveys – “small factories, shops, and the restaurants, hair salons, bars and karaoke lounges that blossomed throughout China in the past decade”.

So what should investors make of this shift? asked Edward Hadas on Breakingviews.com. “First, they should be comforted”. The increased measure of consumption makes the Chinese economy look more balanced (in favour of private consumption and away from state-driven investment) and thus more politically stable.

But second, investors should not fundamentally change their view about the country’s economic trends and position. Industrial growth is still remarkable at an annualised rate of 17% last month – but the higher estimate of GDP does not in itself make China a more formidable competitor internationally. Moreover, third, investors should not be distracted from an “economic distortion that has a significantly greater flattering effect” than undercounted consumption – namely the artificially low fixed value of the renminbi. A true “market measure of the currency’s value would make the economy look less, not more, potent”.

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Published in Economics | More articles by Simon Wilson

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