Figuring out China's real economic size

Discussion in 'China' started by Rahul92, Sep 25, 2010.

  1. Rahul92

    Rahul92 Senior Member Senior Member

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    Every morning, hundreds of shoppers descend on the open-air fruit and vegetable market near the Workers' Stadium in central Beijing.

    It is usually noisy. Stallholders shout out the prices of their produce, laid out on wooden tables or on sheets on the ground.

    Money changes hands constantly in what is still a largely cash society. How does the government keep track of all these financial transactions?

    [​IMG]
    Beijing's central market is a bustling place


    It is an important question. New figures suggest China could have just overtaken Japan as the world's second-largest economy.

    But how do we know? Can we trust statistics from China, which is not always open and transparent with numbers?

    Interviews with market stallholders suggest they do not always declare everything they earn to the Chinese tax bureau.

    This implies that China's economy could be bigger than the government believes.

    Wang Xiaolu, of the China Reform Foundation, carried out research that supports this idea. He says the hidden economy could be huge.
    Methods questioned

    Mr Wang checked income and spending patterns in a survey covering 4,000 samples across 19 Chinese provinces.

    He estimates that in 2008, the disposable income of urban Chinese households could have been 90% more than the government thought.

    Not all economists believe Chinese economic data is completely unreliable, but some question the methods used to collect it.

    Wang Tao, head of economic research in China for the bank UBS, said China relied on local governments and businesses to report what they were doing.

    "Sometimes it might be in the interests of a locality or a company to over-report what they have done, especially if their boss will then look on them favourably," she said.

    There is another problem.

    Getting businesses to report was easier when China had a planned economy and there were relatively few sectors in the economy.

    It is now more open and capitalist. Individuals can start their own businesses and whole industries can spring up in a short period of time. This makes it difficult for the government to track the economy.

    "For example, when the economy is booming, you could have a restaurant set up, but nobody went there and asked them to report," said Ms Wang.

    "But when the economy goes bad, maybe they went bust and nobody noticed."
    Terms of trade

    All this means that the speed of economic growth in China - it grew by 8.7% for the whole of last year - is perhaps exaggerated, but the economy is possibly bigger than estimates suggest.

    China's economy could have overtaken Japan's several years ago

    [​IMG]
    China's economy could be even bigger than thought

    Gathering accurate statistics is not just an academic exercise: they help governments, businesses and individuals make informed financial decisions.

    One group of people that needs dependable information are individual stock market traders in China.

    They gather at small stock trading centres in towns and cities across the country. Citic Securities runs one that is housed in the former home of an imperial princess in Beijing.

    Wang Yuxiang has been going there for the best part of a decade to buy and sell shares on China's stock markets.

    She is one of dozens of pensioners who spend hours each day watching the centre's electronic notice board report the latest company movements.

    Does she trust all economic data and information?

    "There's always true and false information - companies are no different. You have to watch a business over a period of time," said the 65-year-old.

    The pensioner is particularly wary of state-run companies, because she believes they are unpredictable.

    So if Mrs Wang does not trust all China's economic data, how can economists really calculate when China will overtake Japan as the world's second-largest economy?

    Wang Tao, of UBS, suggested that perhaps we should not get too fixated with that particular milestone.

    "Contribution to world growth matters more than size. From that point of view, China passed Japan quite a while ago,"
     
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  3. p2prada

    p2prada Stars and Ambassadors Stars and Ambassadors

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    Black Money exists in many countries but Govt never earns through this. So, no point bringing it into the economy equation.
     
  4. badguy2000

    badguy2000 Respected Member Senior Member

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    the caculation methed of CHinese GDP is quite different from the popular methed of USA and India.

    China's is a mixture of trandiional soviet-sytle statistic and west-style statistic,which makes CHina's GDP hidden much
     
  5. Daredevil

    Daredevil On Vacation! Administrator

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    :emot15: Your posts crack me up every time. GDP is calculated only in one way, there is no soviet style, west-style or a Chinese style. GDP is calculate using the simple formula

    GDP = private consumption + gross investment + government spending + (exports − imports)

    All of the components above are based on the transactions that government can access (black market not included). So, if countries start calculating GDPs in their own style, then those GDPs are not comparable across the board, its like comparing oranges and apples instead of comparing small oranges to big oranges. So, don't make a spectacle of yourself by making lame comments like Chinese style GDP, Soviet-style GDP blah blah.
     
  6. badguy2000

    badguy2000 Respected Member Senior Member

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    guy, pls don't show off your ignorance everywhere.

    there are two kinds of economy statistics system for economy in the world .One is Soviet-style, called " MPS", and the other is west-style, called "SNA".

    Two kinds of economy statistics system is based on different economy theories.
    Both also have different indications..... MPS uses "gross output value of industry and agriculture" while "SNA" uses "GDP(Gross National Products)"

    China used to use MPS and used "gross output value of industry and agriculture" as most important economy indication.

    After 1985, CHina gradualy converted to SNA and replace "gross output value of industry and agriculture" with "GDP".

    However, such a convertion is not complete . In fact, China's GDP so called is still a mixture of MPS and SNA. it is quite different from GDP purely based on SNA system.

    guy, it would take one year or more to explain the difference between MPS and SNA....if you want more details ,you should search for it yourself.
     
  7. Rage

    Rage DFI TEAM Stars and Ambassadors

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    Nevertheless, despite the 'minimalist-service' sector exclusion in the Material Product System, it greatly exaggerated growth performance.

    China's official growth figures still exaggerate growth, but to a much smaller degree. Here read a little:


    http://docs.google.com/viewer?a=v&q...xwDxDQ&sig=AHIEtbQjS943UQO_jPH3UdnoqZb5xCPXIw

    The old style of MPS measurement had serious recording flaws, which measured gross output instead of value added; Surely you can see the problem with that- as you're measuring not the value of the final product, but the value of all its components many times over. This was doubly inflated- in both the Soviet Union and in China- by the system of measurement of enterprise returns. Enterprises had the incentive to exaggerate the degree to which they were fulfilling plan objectives.

    Additionally by providing a lot of detail about the value and physical quantity of the product, tangible product, at administered prices- the MPS never showed to what degree wealth was distributed, incomes used and consumption spent on domestically produced items. The low administered prices, on the on hand, were the reason for why more industrial producers never cropped up and the reason, extendedly, for why a great part of industrial output was conflated. While the high prices for certain domestically produced goods that were exported, on the other, were the reason for depressed exports and a certain modicum of growth-inflation. Ofcourse, this latter never had the impact it would have in the Soviet era because of the separation of the world into blocs.

    The tendency, anyhow, was to inflate, rather than to understate. Despite the exclusion of rail services, social services (which are few anyway in China and India) and the like.

    China's transition from MPS to USSNA has been goin' on for almost 32 years, since 1978, and is almost complete. Any MPS-synonymous exclusions today are largely residual.
     
    Last edited: Sep 26, 2010
  8. badguy2000

    badguy2000 Respected Member Senior Member

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    guy, China "GDP" is much complicated than the above word suggests....

    In fact, China's GDP is not real "GDP" difinited by "SNA" system at all.

    It is a unique mixture ...a chinese-style term....

    For example.

    China's GDP doesn't include "rent" at all. however, 1/10 of USA's 12 trillion GDP(2005) is "rent",that is 1.234 trillion USD,which is more than India's entire GDP.

    besides rent, CHinese "GDP" also doesn't include many other items ,which should have been included according to "SNA".

    Conclusion: CHina 'GDP' is not "GDP" strictly definited by "SNA" at all.
     
    Last edited: Sep 26, 2010
  9. badguy2000

    badguy2000 Respected Member Senior Member

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    About CHina's GDP ,several details should be clarified:

    1. China's "investment" not = west's "investment".
    Chna's "investment" usually means the "investment of fixed asset". it doesn't include "depreicaiton of assets" ,but incudes "land cost". But on contary,west "investment" includes "depreciation of assets" ,but doesn't include "land cost".

    because China's GDP is underesitimated while China's "investment" is overestimated according to "SNA", china's ratio of "investment/GDP" is overestimated seriously..
     
  10. Rage

    Rage DFI TEAM Stars and Ambassadors

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    Guy, Chinese "GDP" as "definited" by China is measured on the production side, not the income side. Ofcourse it doesn't include rent.

    GDP by expenditure never does.

    Are you listening to me? Simply put, China's production-side measurement of gross product conflates production values by its residual reliance on the MPS, even as it did not include- or never included at one point, but progressively does- expenses on hoteling, railway and other "non-productive" services.
     
  11. Rage

    Rage DFI TEAM Stars and Ambassadors

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    Here, read this. This'll give you a good measure of national accounting methods in China:

    National accounts for China: sources ... - Google Books

    Note the statement: "... follows its recommendations quite closely".
     
  12. badguy2000

    badguy2000 Respected Member Senior Member

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    No.

    China's GDP is a mixture of "productin side" and "income side"... it is a unque "GDP" in the world.

    well, I have a party soon. I will explain it later.
     
  13. Rage

    Rage DFI TEAM Stars and Ambassadors

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    No.


    China's GDP, as is published by the NBS, is and always was a "production"-oriented measure of calculatin' Gross Domestic Product. Formerly, it was a measure of the "Material Product" of the economy under the MPS, discounting "non-productive service" sectors but hugely inflating price and inventory values for accounted valuated tangible product, today, it is a close approximation of the production/expenditure-side approach of the US SNA.

    The other estimate arrived at by the NBS, which is not published and is a residual method of the MPS, differs from the expenditure-side approach little, and has a statistical discrepancy of on average 0.9%. This is more than balanced off, when higher, by conflated base values at the local level.

    Your characterization is overly simplistic and fails to appreciate the nuances and evolution of the Chinese accounting method.

    Do yourself a favour and read the books. You don't need to take my word on this.
     
    Last edited: Sep 27, 2010
  14. badguy2000

    badguy2000 Respected Member Senior Member

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    No.

    China's GDP is a mixture of "production side" and "income side"...

    As for the caculation of Industry and agriculture, CHina uses "production side".
    As for the caculation of service section, China uses "income side".

    here is a special thesis how CHina's GDP is caculated.....which is written by a former officer of CHina's NBS,who resigned from CHina's NBS and studied statistics in USA once.

    [​IMG]
     
    Last edited: Sep 27, 2010
  15. Rage

    Rage DFI TEAM Stars and Ambassadors

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    No.


    China's GDP has always been one of several production-side/expenditure methods.

    In the old system, it used the MPS method of calculaton. In the new, it uses a very close approximation of the Standardized method of National Accounts.

    The old method was supplanted with the new in 2003, when the division between 'material production sectors' and 'non-material product sectors' was relinquished.

    http://www.chinadaily.com.cn/en/doc/2003-08/14/content_254686.htm


    Do yourself a favor and also read this Summary Report frm the Asian Development Bank:

    http://docs.google.com/viewer?a=v&q...e5ZA6&sig=AHIEtbTuvAqRyH8D4mpF8TZ6HeNWtpDjWw]

    This also alludes to the 'fiscal revaluations' I mentioned earlier.

    P.S.- You giving me a 'thesis' in Chinese means nothing. I might as well give you a thesis in German or Hindi.
     

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