Implications of China's GDP revision

China's GDP is 16.8% higher than previous estimate. Almost all western academic praise this as a long due revision. While there is still considerable error in the new number, and in fact, any statistics of such a large scale (and can be announced before the calendar year actually ends) need to be viewed only as an reference number, a major bug is fixed.

The fundamental message remains unchanged.
  • China is a large economy, ranked #6 in 2004, between France and Italy (Ranks: USA, Japan, Germany, UK, France), and can catch up with Germany and Japan in the next decade of two. But it is still a developing country, with GDP/cap under $2000, 1/20 that of USA.
  • Since the change of methodology does not change the growth number significantly (what has missed in 2004 was also missed in 2003), the trends (growth numbers) are still correct. i.e. the growth would be 9.0% or 10.0%, instead of 9.4%, depending on how much the missed 'service sector' has grown.
However, there are a few implications we can draw, some of which suggested by the Economists
  • The survey also confirms some long-held suspicions about China's economic make-up: that its service sector is bigger than the one-third of GDP suggested by the old figures (the new data show more than 40%)
  • that consumption is also higher and that investment and savings as a proportion of GDP are lower. This lot of figures look more sustainable than the old lot. But they are still only a best guess at the truth. And, at a sixth the size of America's, China's economy still has a bit of catching-up to do

I would also add a couple more, the trade surplus as a percentage of GDP is smaller than previously thought, so is the forex reserve/GDP number, or saving/income rate. In particular, my export market share needs to be recalculated.

With the service % now at 40.3%, China's color code is change to the same as India's, although India still leads by about 9-10 percentage points.



IceTea said...

Hi Sun Bin,

I've just recently started to get interested in international economy and China in particular.

And I find this "GDP revision" very interesting. How could a country just revise its GDP - is it just an adjustment for error or China is trying to print money to solve the problem (what ever that might be)?

I am nascent to the world of economy, i would greatly appreciate if you or anyone can provide useful comments and/or point me to useful resource.


IceTea said...

Actually i worded it badly.

What i meant was China trys to manipulate the numbers to artificially lower the money supply in proportion to the GDP

Quan Song said...

Hi icetea,

The revision is due to the better measurement, which includes a lot of small private-owned shops, such as corner shop, hairdress shop and beauty salons etc. Many economists still believe the size of China's GDP is underestimated after the revision. By the way, the current money supply (17%) is quite healthy for China.

Sun Bin said...

icetea, it is more like an adjustment of an error on the previous method.

in the old planning economy, many small businesses were not counted and the error was small because these businesses were very small (say<1%). but time has changed, they had long become a significant percentage, now 17%. so it is neccesary to adjust them.

however, there might still be error, such as under-reporting for the purpose of tax evasion. but this should matter less when we compare china with india or brazil, as it happens in many other developing countries as well.

Asia Business Intelligence said...

Any statistical figure coming from the state statistical apparatus is inherently suspect. What makes this figure any less inaccurate than past numbers?


Sun Bin said...

It is probably still inaccurate. But it is the only thing we can work with. (I guess even the GDP # in US has error, the difference between China and US is the range of error?)

However, the new # corrected one of the major mistake (maybe a deliberate one) of the old one.

As I said above, the numbers are mainly useful for indicating:
1) where the GDP is roughly
2) what is the trend based on the same definition.