China's economists grapple with
higher GDP By Antoaneta Bezlova
BEIJING - China's economists are grappling
with the significance of the country's economic
size after gross domestic product (GDP) was
officially restated as being much larger than
previously thought. They are warning that, while
the country's bigger and more mature status is
winning accolades from investment banks, the new
picture also brings with it greater
responsibilities.
After revelations of
China's upgraded prosperity, the world is likely
to take a sterner look at how the country manages
a whole range
of
sensitive issues, including environmental
degradation, inefficient energy use and protection
of intellectual property.
"With a larger
economy comes also larger responsibility," said
Chen Xindong, chief economist with BNP Paribas
Peregrine Securities. "Following the publication
of the new data, the international community would
have greater expectations from China regarding its
responsibilities and duties [as] a world
player."
The government's main statistical
body, the National Bureau of Statistics (NBS),
recently revised the country's economic growth
assessment for 2004 and announced new data for
economic growth back to 1993. Using data from a
2004 economic census, statisticians have not only
uncovered about US$285 billion in previously
unreported GDP, but released new and higher rates
of growth for the past 12 years.
The new
figures mean China's economic growth for 2004 was
10.1%, rather than the previously reported 9.5%.
Between 1979 and 2004, the country's economy grew
an average of 9.6% a year, or 0.2 percentage point
higher than originally stated, according to a
statement posted on the NBS website on Monday. The
2004 GDP revisions made China's economy officially
almost 17% bigger, placing it ahead of Italy as
the world's sixth-largest economy and just behind
France and Britain. Some estimates predict China
will surpass France when the 2005 figures for
economic growth are published this month.
The changes followed the country's
first-ever nationwide economic survey, which
involved more than 10 million data gatherers and
statisticians. It revealed that the service sector
played a much greater role in China's economy than
previously believed - a fact economists say is a
sign of its maturing and evolving away from the
heavy industrial basis of the central-planning
era.
NBS has admitted that the previous
methodology for measuring economic growth was a
legacy of central planning and skewed toward the
industrial sector and with a tendency to overlook
the output of services industries. As a result,
GDP growth was understated each year for more than
a decade, the NBS said. The service sector's share
of GDP for 2004 rose from 31.9% to 40.7%, the
bureau said, suggesting that China's economic
structure is becoming more balanced, with growth
depending increasingly on private consumption as
well as fixed investment.
"The new
revisions disperse one of the biggest worries
about the sustainability of China's fast growth
because they show that the country's economy is
not overdependent on investment," said Tao Dong,
analyst with Credit Suisse First Boston
Securities.
Yet even if investment is
becoming slightly less important to the overall
economy, its share of China's GDP is more than
45%, which is high by any standard. Furthermore,
this figure continues to rise because of
difficulties in slowing or blocking investment
projects undertaken by many local governments,
which advocate high growth rates rather than the
quality economic growth that is supported by the
central authorities. This means Beijing will face
continuous challenges in overcoming imbalances
caused by rapid investment growth, such as
environmental degradation and skyrocketing energy
prices.
Economists reckon that new GDP
revisions will have little impact on the central
government's main economic priorities in 2006 -
namely reducing the income gap in the interest of
social harmony and reversing the environmental
damage done by years of growth at any price.
"GDP is a reflection of one country's
economic power, but GDP doesn't solve the problems
of income distribution," said Fan Wenzhong,
economic analyst with Lehman Brothers Securities
Asia Ltd. "The central government knows it has to
boost consumption in relation to investment but
this can only be done by raising [the] living
standards of the masses."
The government's
new campaign to raise income levels in the
country's vast rural areas would give Beijing an
additional reason to resist pressure from Western
trading partners to appreciate the Chinese
currency further. China revalued the yuan by 2.1%
in July, but the market keeps on betting on
further revaluation, as the United States
continues to say the yuan is seriously undervalued
and gives Chinese goods an unfair advantage in
global markets.
But a stronger yuan would
undermine Beijing's efforts to equalize income
distribution and raise living standards in the
vast and underdeveloped Chinese countryside. Even
a slightly stronger yuan would hurt Chinese
farmers, who are vulnerable to foreign competition
because of their small farms and low productivity.
Trying to dampen speculation of a further
appreciation of the yuan caused by the upward
revision of the economy's size, a senior
government economist was reported as saying China
was unlikely to move much on the currency front
this year.
"The yuan is unlikely to
appreciate significantly in 2006," Ba Shusong,
finance research analyst with the State Council's
Development Research Center, was quoted as saying
by the official Shanghai Securities News
last week.
