Opinion: China's GDP growth accurate

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Last updated at: (Beijing Time) Saturday, July 27, 2002

Opinion: China's GDP growth accurate

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The analysis of Thomas G. Rawski, an economics professor at the University of Pittsburgh, in his 2001 paper: "What's Happening to China's GDP Statistics?" which doubts China's GDP growth, has spread widely in Western media and even among some domestic academics.

However, an analysis to China's situation fully supports that China's economic growth is based on real progress driven by impressive potential and not artificially bloated statistics. Moreover, such a trend will continue with high speed in the near future.

Many are suspicious about China's high speed of economic development because it seems difficult to understand against the background of the economic slowdown in Asia after the financial crisis hit the region in 1997.

Analysis into the following two aspects may facilitate better understanding of the issue.

First, in economic theories, a slight absolute increase in a small base amount turns a high growth rate, while a large amount of absolute increase on a large base amount only transforms into a very low growth rate.

This should be taken into consideration when examining Chinese economic growth.

The GDP per capita of Japan is US$30,000, an annul growth of 1 per cent would increase the national wealth by US$300 per capita.

By contrast, a 10 per cent growth in the Chinese per capita GDP only makes an increase from US$900 to US$990.

The country's economy develops from a low level, and the per capita GDP is far behind the figures of Japan, South Korea, Singapore and other countries and regions heavily stricken by the financial crisis. Therefore, China's GDP growth rate is much higher than neighbouring countries but the absolute increase of per capita GDP is not so high.

Second, in the financial crisis, many Asian countries were hit so seriously that their economies lost the energy for further growth. As a result, their economic growth was dormant for two or three years after the crisis.

By contrast, China was not so heavily affected in the crisis. Since China's capital market was not open and the currency, the RMB, was not fully and freely convertible in 1997, and the economy had closed circulation in the terms of finance.

The Chinese Government also took many measures to resist possible financial risks, one of which was implementing its pro-active fiscal policy.

Therefore, the country's economy was able to maintain its robust increase when neighbouring countries faced an adverse economic climate.

Many overseas and domestic researchers are pessimistic about China's future economy. In their opinion, any statistics showing a high growth rate must be fake.

Such judgment is obviously one-sided.

China's high economic growth is pushed by several powerful internal engines.

Being in the middle phase of industrialization and the primary to middle phase of urbanization, China will see remarkable changes in the consumption market.

It is estimated that a 300 to 400 million rural population will move into cities in the first 20 years of 21st century. Their consumption structure and ideas about consumption will undergo considerable transformations.

Meanwhile, rural labourers will see their income increased and hence upgrade their consumption levels after surplus labourers are transferred to cities and production efficiency is improved.

Therefore, it is hopeful to see large-scale advancement in consumption in both the rural and urban markets, which will create a huge consumption demand.

As urbanization and industrialization progress, the construction of housing, transportation and other public facilities will attract massive investment and produce numerous job opportunities. In addition, industries, especially manufacturing industries, will have unprecedented development.

Another powerhouse of the GDP will be the prosperity of small and medium-sized enterprises (SMEs).

Statistics show every thousand Chinese occupy 7 SMEs while the figure in developed countries is 50. If the total number of Chinese SMEs increases to 50 million from the current 9 million, and every enterprise supplies 10 more positions, about 400 million new jobs will be created.

Thus, wealth will be accumulated and services offered and energy saved.

An advantage that China has in international competition over many other countries is the rich reserve of low-cost labourers.

The labour-intensive industries and industries that are both labour and capital intensive will be promising, assisting China to become one of the global manufacturing centres in the next 15 to 20 years.

Industrialization based on the competitive advantages will surely support the high-rate of growth of the Chinese economy.

Most statistics of the Chinese economy reflect this fact.

Governments at all levels have done much to ensure the reported statistics are valid, such as punishing those who report fake statistics, establishing supervising bodies, adjusting the reported statistics according to results of sample surveys and checking statistics of economic growth with those of taxes, bank deposits and consumption.

On the other hand, some under-developed regions may boast in reporting growth, but the developed regions may also artificially decrease their reported growth to keep more revenue for themselves. This creates a balance in the statistics.

In addition there are many hidden incomes that are not counted in the total GDP, such as migrant workers' incomes from working in cities and wages paid for providing food, gardening and cleaning at companies and enterprises. To understand what's happening to China's economic development, it is necessary to look at the issue with an open mind.

China is a nation undergoing dramatic changes in nearly every aspect. The reform of its economic system is being furthered, technology achievement is continuing and labour education is improving. As a result, the correlation ratio between input and output is fluctuating all the time.

Only by being ready to accept development and changes, can one understand the real situation in China.

Notes: The author, Zhou Tianyong, is a scholar at the Research Office at the Party School of the Central Committee of the Communist Party of China.

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