by Maurizio d�Orlando

China's size but also Beijing's inaccurate statistical data explain today's news reports about a richer China.

Milan (AsiaNews) – All newspapers and news agencies, except AsiaNews, reported yesterday that China's National Bureau of Statistics added US$ 284 billion to its 2004 gross domestic product (GDP) figures, an incredible jump of 16.8 per cent over the previous year. With the new data, China's economy ranks fifth, not sixth, ahead of Italy. Final data for 2005 should place it ahead of France and Great Britain. AsiaNews did not report the story yesterday because it had done so on December 13. Perhaps few paid attention.

Front page news around the world, but not for us at AsiaNews or at least "those in the know" for the following reasons.

1) In economic terms, China's rising GDP is not big news because everyone could have seen that China was the greatest economic success story of the last 20 years. World Bank data showed that its annual growth rate in 1984-94 averaged 9.4 per cent; 8.3 in the next decade despite the 1997-1998 Asian financial crisis. In 2004 its growth rate in constant terms was 9.5 per cent; this year it is expected to be the same. In the 2004-2008 period, it is forecast to average 8 per cent.

2) If it is news, China's rising GDP compared to that of the world is small news. It was 4.03 per cent before correction against 4.70 per cent now (calculations by the author based on World Bank data). With almost 1.3 billion people, China's has the largest population in the world. It is a no-brainer to think that its economy would be bigger that that of countries with smaller populations. China has 20.43 per cent of the world's population compared to Italy's 0.91 per cent. But in current prices, China's per capital GDP in 2004 was 19.7 per cent of the world average. After correction, it was 23.14 per cent (calculations by the author using World Bank data). The change is significant but not as important as the world press might lead us to believe.

3) China's revised GDP shows how inaccurate the country's National Bureau of Statistics can be. And this, too, is no big news since its reports have been inaccurate since Mao's days. With officials largely trained according to Marx's economic theories—whose notion of surplus value does not take into account the role services and intermediation activities play in generating value—this is not unexpected. Services and intermediation activities would not be taken into account or be underestimated as opposed to activities of material production. It is therefore easy to see that the GDP jump was largely a function of the service sector in Guangdong, a province where Western economic theories and organisational practices could more easily penetrate from the former British colony of Hong Kong which it surrounds.

According to Dong Tao, chief economist for non-Japan Asia at Credit Suisse First Boston, China's correction is a positive step but it might still be underestimating the size of its services sector. The latter is now estimated to account for 41 per cent of GDP, up from 35 per cent. But anyone who has visited both India and China can see that China's service sector is as strong if not stronger than India's. It should be as big as well, around 52 per cent.

For Dong, if China's service sector is underestimated there reasons are to be found in a strong underground economy, widespread tax evasion and an undervalued yuan. For example, restaurant meals that are paid without receipt of payment are not included in the overall GDP. And with high taxes and an inadequate collection system, statistics are poor quality.

4) China's bigger economy is no big news because her position is less than what it seems if we use the World Bank's purchasing power and current exchange indexes to rank countries' GDPs. In the first case, China's GDP (US$ 7.123 trillion) is second only to the US (US$ 11.628 trillion). But in the second case, China falled to seventh place (US$ 1.653 trillion) behind Italy (US$ 1.672 trillion). Whilst the difference between the two measures is minimal for Italy, it is great for China. If we consider China's annual per capita GDP, we see that it stands respectively at US$ 5,495 for purchasing power and US$ 1,272 for current exchange rate. In terms of purchasing power, China's GDP represents 12.73 of the world's GDP, but in terms of the current exchange rate it is only 4.03 per cent.

Comparing prices and goods is not an easy task. The gap between the two econometric tools is enormous and evinces a strong distortion rooted in China's past economic isolation and its currency's only partial convertibility.

This distortion should be looked at carefully for part of China's economic growth may be simply be the result of the gradual inclusion in GDP data of those goods and services that were not counted in the former centrally-planned economy.

Even if upgraded to meet international standards, China's accounting methods might still be inaccurate because they apply to a socio-economic system in transition or at least still beyond the power of established econometric tools.

In other words, applying statistical methods used in Western societies and economies may not be appropriate for China.

• china
• economy
• gross
• domestic
• product
• gnp
• revised