BEIJING - A mammoth
revision in gross domestic product (GDP, the most
widely accepted estimate of the size of an
economy) figures by statisticians in Beijing has officially
turned China into a much larger economy than
previously thought.
While the new figures,
which reflect a modernization of calculation
methods, are widely accepted by outside analysts,
who have argued for years that China has been
underestimating the size of its service sector,
there is some uncertainty about China's new
position in the world GDP
rankings. Initial press reports on the statistical
readjustment, made before the release of official
results on December 20, had stated that China
would supplant the UK as the world's
fourth-ranked economy. However, when the actual
figures appeared, the government only claimed
sixth place.
There are several possible
explanations for the discrepancy. First, the early
reports could simply be inaccurate; for example, a
widely cited December 13 story in the South China
Morning Post predicted a 20% increase in stated
GDP, but the actual number turned out to be 16.8%.
Second, the Chinese government apparently did not
include Hong Kong and Macau in its
calculations; the two special administrative
regions, which are counted separately for most
statistical purposes, have a sufficient economic
weight to lift the revised ranking from 6th to
4th. Third, the UK, France and Italy (4th, 5th and
6th, respectively, in 2004, according to World
Bank figures) are bunched together closely enough
in the rankings for relatively small differences
in calculations to change the position.
It
should be noted, also, that the rankings referred
to are US dollar rankings which are affected by
exchange rate fluctuations, eg, the revaluation of
the yuan; other calculation methods, such as the
widely cited purchasing power parity (PPP) method,
can yield quite different results (in PPP
rankings, China has been No2 for some time).
Understating the case? Some
observers considered it curious that China would
produce revised figures that arguably still
understate the country's economic heft - as No6
rather than No4 - especially given the criticality
of economic growth to the legitimacy of the
Chinese regime. The explanation may lie in the
government's desire to curtail nervousness abroad
about the implications of growing Chinese economic
power. Many recent government statements are
consistent with this interpretation: for example,
the "peaceful rise" policy referred to many times
by top officials in recent months. In addition, at
the same news conference where the GDP revision
was announced, top statistician Li Deshui
conspicuously drew attention to China's per-capita
GDP ranking, which is generally below 100 (along
with economic midgits like Paraguay and Vanuatu).
The official announcement On
December 20, Li announced that China had revised
its GDP for 2004 to 15.9878 trillion yuan (US$2
trillion), up 2.3 trillion yuan, or 16.8%, from
the preliminary figures. The announcement was made
at a press conference of the Information Office of
the State Council, citing the result of a national
economic survey. The government stated that
accordingly, the country has overtaken Italy as
the world's 6th biggest economy.
As
expected, the increase was primarily due to a
revision of service industries. The value-added
for tertiary (service) industries was 6.5018
trillion yuan, 2.1297 trillion more than the
annual preliminary estimation announced earlier
this year. And the industry's share of GDP rose
from the earlier estimated 31.9% to 40.7%, an
increase of 8.8 percentage points. The increase in
service sector output accounted for the largest
part, 93%, of the total GDP increase.
Li
said China had long used the Material Product
System (MPS), which was developed under the
centrally-planned economic system, in its national
account statistics, resulting in "very weak"
statistics for the service sector. The scope of
tertiary industries is becoming wider and more
complex with a large number of units that have no
accurate methods for accounting and statistics, he
said.
Meanwhile, along with its economic
reforms, China has seen a diversified economic
development in terms of ownership, and in
particular, a dynamic development of private and
individually-run service activities. "It is very
difficult to conduct statistical surveys as
[service businesses] are very scattered with
frequent changes, resulting in a certain degree of
under-coverage," said Li. While many new services
are mushrooming, data on their activities are
often underestimated, he acknowledged. Li added
that some of the services affiliated to
manufacturing or construction enterprises are
estimated but classified into the secondary
industry category, while others are neglected.
The value-added of secondary industries
(mainly manufacturing) was 7.3904 trillion yuan in
2004, 151.7 billion more than the original data,
while the industry's share in the GDP shrank from
the preliminarily estimated 52.9% to 46.2%, a drop
of 6.7 percentage points. "Through the survey, we
[were] able to remove the 'water' from the
statistics of the manufacturing sector, in
particular, from small-sized enterprises," Li
said.
Analysts say some small firms,
including township enterprises in the rural areas,
have been exaggerating their output figures to
help local governments and officials showcase
their "political achievements" and seek promotion.
Li said the GDP share of primary
industries was still based on the figure from the
annual preliminary estimation, as the sector was
not covered in the new survey. The value-added of
primary industries was 2.0956 trillion yuan, and
the industry's share in the GDP was 13.1%, 2.1
percentage points lower than the preliminary
figures.
The results from the latest
survey will not affect the nation's macroeconomic
policies, Li said. "The changes in the figures do
not mean the traditional statistics have misled
China's policymaking."
The survey's
leading group was set up under the State Council,
China's cabinet, and headed by Vice Premier Zeng
Peiyan, with governments at all levels and
concerned departments participating in the event.
More than 3 million enumerators and supervisors
were recruited, and another 10 million
statisticians and accountants from government
agencies, enterprises and institutions were
mobilized to participate in the survey, according
to Li. More than 30 million questionnaires were
collected in the survey with more than 1.06
billion raw data records, Li said, adding that a
sample survey showed that the comprehensive
reporting error was only 4.9 per thousand, within
the 1% target.
Business
confidentiality "In the publication,
utilization and analysis of the survey results,
departments and local governments concerned should
continue to abide by the Statistics Law and the
Regulations on National Economic Survey, to
protect business confidentiality and privacy of
the respondents, and to honor earnestly the
commitments [to] not levy any penalties on the
respondents on the basis of survey information,"
stressed Li.
The NBS is working on the
revision of data back to 1993 on the basis of the
revised GDP figures in the survey year, using the
trend deviation method widely adopted by the
Organization for Economic Cooperation and
Development (OECD). "Results of the revision will
be released on another occasion," Li said.
According to the State Council's decision,
the survey results will be used as a basis for the
central government and for local governments in
compiling 2005 national account statistics, in
highlighting economic and social development for
the 10th Five-Year Plan period (2001-2005), and in
preparing the 11th Five-Year Development Program
and the 2006 annual development plan, he said.
Don't break out the champagne
yet The chief statistician noted that
although the revision has led to a considerable
increase in the total GDP, the ranking of China's
per capita GDP is still below 100th in the world.
By the end of 2004, roughly 100 million peasant
farmers and more than 20 million city dwellers,
nearly 10% of the country's total population, were
in need of financial support from the government,
Li noted, adding that China's population living in
poverty outnumbers the total populations of most
countries in the world.
Li also noted that
China's GDP growth has been at the cost of
excessive energy use. According to the revised
figures, China produced 4.4% of the world's total
GDP in 2004, yet the crude oil it devoured
accounted for 7.4% of the world's total; coal,
31%; iron ore, 30%; rolled steel, 27%; and cement,
40%.
the world's
fourth-ranked economy. However, when the actual
figures appeared, the government only claimed
sixth place. 
