December 21, 2005

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As reported previously, China's GDP was revised up by almost 17% yesterday. This was thanks to a large revision in the contribution by the services sector. But some economists still consider the figures understated, perhaps by as much again as this revision. From the SCMP:

The long-underestimated service sector now has a GDP ratio of 41 per cent after the revision, up from 35 per cent. But Mr Tao said this ratio of the booming service sector was still too low, and up to 220 billion yuan was probably underreported.

"Anybody who has been to both India and China would tell you that China's service sector is as robust as India's, if not more ... China's GDP ratio of its service sector should at least come closer to India's 52 per cent," he said. Mr Tao said the underestimation was a combined result of an underground economy, tax evasion and currency undervaluation. He said sectors such as catering, hospitals and construction were prone to data collection faults...

Economist Andy Xie from Morgan Stanley said the lack of an independent national statistics agency was the major reason behind the unreliability of economic statistics as local authorities would tend to "massage" statistics.

Some other implications:

1. China is now the world's sixth largest economy, behind the USA, Japan, Germany, Britain and France.
2. Several elements of China's government spending are set for big rises, especially education, health and defence, as these are usually set as a percentage of GDP. However the question will be how the Government will pay for these increases - just because the statistics say there's a jump in GDP, it doesn't mean the money magically appears in the coffers.
3. China's per capita GDP is higher again, taking the country to 107th in the world from 112th. Everyone in China is 17% richer than they were yesterday. I somehow doubt it will spark a consumption boom.

Here's a translation of the National Bureau of Statistics statement on the economic census.

David Altig notes the contrast with Japan.

posted by Simon on 12.21.05 at 09:00 AM in the China economy category.


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