Terms it provides a fuller list back to 1978. Cross referencing with other texts provides fuller details: the China Statistical Publishing House, which publishes the yearbook, also produces China Regional Economy, A Profile of 17 Years of Reform and Opening Up, which brings together a comprehensive summary of national data annually from 1978. Both texts provide regional and sectoral breakdowns.
Over the past two decades, China has been praised for its record of high real growth rates. Much has been made of its success among developing nations, especially in comparison with that other one-time monolith of state economic regimentation, Russia. While Russia has stagnated, China has delivered real growth with occasional double-digit peaks.
This year, Premier Zhu Rongji has staked his reputation on achieving a growth rate of eight percent over 1997. Indeed, more attention has been focused on predicting whether the target is likely to be met than on reflecting whether the attainment of this one-dimensional goal is an appropriate response to the many complex economic difficulties which face the nation.
As the most quoted indicators of the Mainland economy, GDP and GDP growth merit closer scrutiny.
Regional and national data
The State Statistical Bureau has published aggregate estimates of China's economic performance every year since 1952. It aggregates value-added by output or income (depending on the sector) to arrive at national GDP. Separately, it supplies GDP data calculated on expenditure as a sum of final consumption, capital formation and the net exports of goods and services. Differences between GDP (output and income) and GDP (expenditure) are attributed to statistical discrepancies. On the face of it, the correlation between the two is close enough to suggest good consistency and relative insignificance in the statistical discrepancy.
GDP data is revised after initial publication, so that current yearbooks are to be preferred over previous years for historical data. This might reasonably be expected, for example, where census years intervene to provide more accurate intelligence. Other factors include the sheer volume of information that accumulates over time, the need to reconcile statistics from different sources and the possibility of inaccurate reporting.
Regions provide local data that feed into regional GDP figures. These are compiled separately from national GDP data; the sum of regional GDPs does not match the national GDP figure. The State Statistical Yearbook is silent on the reasons, except to say that regional and national income exercises are carried out separately.
The State Statistical Bureau Yearbook provides growth data for the preceding decade and for benchmark years – 1978, 1980 and 1985. However, in expenditure
A degree of consistency
Analysts need to be clear what they are getting when they look at China's GDP figures. The emphasis on output carries undertones of the command economy culture. The temptation endures for state enterprises and local authorities to over-report production as a badge of achievement. Stockpiling and other evidence of under-performing state industries, point to poor market responsiveness and quality problems, even at times of healthy demand. Production is not a measure of efficient economic activity.
Universal definitions of GDP include the creation of stock. The State Statistical Bureau is coy about the level of inventories. For 1996 it said that the stock of manufactured products increased by more than Yn75bn across the year, on a provisional GDP figure of Yn6,779.5bn. Later figures recorded GDP for 1996 of Yn6,859bn.
For 1997 the bureau reported that finished products in stock at industrial enterprises were valued at Yn592.1bn, a rise of 11.7 percent on 1996. GDP for the year was put at Yn7,477bn.
The other indicator that points to trends on inventories is the sales ratio of manufactured products – in 1997 put at 96.2 percent, up 0.3 percent on 1996. In the first half of 1998 the sales rate average was 94.9 percent. A figure of 94.6 percent is given for the first half 1997 (thought to be equivalent, although the official source specifically ties it to the industrial sector), up 0.6 percent on the same period in 1996.
First quarter 1998 official figures say that inventories grew six percentage points higher than the growth in industrial production. Press reports indicate industrial inventories grew 14.2 percent to Yn558.2bn (US$67.2bn), or seven percent of annual GDP.
Taken together, these figures show that China continues to accumulate stock, and that inventories are at high levels and building. The government admits the percentage is high, the problem being state enterprises that produce goods that no one wants.
A certain percentage of growth goes towards pumping up inventories. This is why commentators often knock a couple of percentage points off the headline GDP figure, to give an idea of ?sellable' or ?efficient output.' Unsellable stock can be regarded as wasted growth, a measure of inefficient economic activity.
Economic growth trends can be matched with alternative indicators such as energy consumption. But GDP is the best indicator of the options available; it lends itself to discounting for the net effect of inventories, and adequate consistency over time can be assumed.
Energy as an indicator
The argument for electricity consumption as an indicator is a historical correlation with GDP growth – a 0.5 percent increase in electricity consumption to a single percentage point rise in GDP. This has several shortcomings – energy supplies, of which electricity is one form, are inconsistent across time and regions, imperfect networks contribute to bottlenecks, and aggregating energy from different sources is complex. Furthermore, there are sectoral imbalances which matter in an economy undergoing a structural evolution. Poorly productive rustbelt industries in the north-east consume energy in a way that thriving service enterprises, for example, do not.
Inventories aside, GDP measurements are vulnerable to perennial doubts: smuggling depresses import figures, exports are influenced by rebate policies, and income from exports is delayed when payments stall, as during the present regional economic climate. The State Statistical Bureau does not clarify in primary sources such as the yearbook how these problems are handled. The picture is further complicated by government price fixing on products such as food, and, a practice currently enjoying a revival, wider price curbs. In sum, China's GDP record must be read in the context of economic features specific to the economy at any point in time.
For all these misgivings and uncertain-ties, statistical GDP movements are a good record of China's economic development since the late 1970s. This is true for official figures and for credible estimates such as by Maddison for the OECD (see page 24). 1979 marked a policy watershed rather than the beginning of economic reforms – Zhao Ziyang actually liberated agriculture in Sichuan province in 1977. The following year, when Deng Xiaoping was confirmed in authority, growth reached 11.7 percent. The reform programme took off in 1979, when growth fell back to 7.6 percent.
The high degree of correlation persisted into the 1980s. Accelerated growth occurred in the first half of the decade, peaking in 1984, as the rural economy was catalysed by the progressive dismantling of communes and the elevation of the responsibility system. Decline set in through the first wave of political destabilisation in around 1986, before recovering briefly until the more serious confrontation of 1989. China was rescued from low growth in the 1990s by strong investment, overseas Chinese money compensating for the slump in Western enthusiasm in the wake of military intervention in Tiananmen Square. More important was Deng Xiaoping's famous injunction in 1992 that to get rich was glorious. Entrepreneurial zeal and optimism were fired. Speculative investment in particular would have forced growth rates even higher in the mid-1990s, had Zhu Rongji not implemented an austerity programme and engineered China's soft landing into 1996. Exports, as well as the US$242bn in utilised inward investment to June 1998, have been the key components driving growth since 1979, when the first four special economic zones were born.
China's excellent growth record to date has been made possible by a rejection of the command economy, the injection of market incentives and general economic opening. As the transition progresses, the marginal gains from transition alone diminish. Beijing is now facing an accumulation of costs of imperfect reform ?state industries are unable to compete in the market, the financial system carries their debt, there is insufficient growth in agriculture and capital is misapplied to benefit the inefficient while starving the efficient.
The cost of reform
Meeting these challenges means high unemployment, accelerated state welfare reforms to catch the many cut adrift and a mounting risk of social and political instability. Economic growth is no longer just about raising national prosperity to close the gap with modern, advanced economies. China must now pay to mitigate the social pains at a critical juncture of reform, to secure sustainable economic development.
The Asian crisis has buried any myth of self-reliance. Integration into the world economic order has exposed China to influences beyond Beijing's control. Export growth for the whole of 1997 was 21 percent (to US$182.7bn), but only 3.9 percent in the first nine months of this year (to US$134.1 bn) against a target 10 percent. Investment is also approaching the doldrums, with January-to-June contracted overseas investment up 5.5 percent to US$24bn but actual investment down 1.3 percent to US$20.5bn. Domestic policy options are few. Two-and-a-half half years of successive interest rate cuts and the favouring of ?growth pole' sectors, such as automobiles and housing, have failed to lift private consumption and liberate deep savings reserves.
While the automobile sector faded after the fanfare, housing has survived because it also offers a way to diversify financial operations, relieve state units from the bur-den of provision and, in the long run, bring new growth. Paradoxically, until the market is established, housing represents added pressure on disposable incomes. It is little consolation that consumer goods sales are relatively healthy, at a time of falling prices, up 6.8 percent in the first half of the year on an urban disposable income rise of just over 6.2 percent. In the countryside, incomes are flat.
The government has opted for increased government expenditure in its quest for eight percent growth this year. The rationale is that eight percent growth is required to create enough jobs to soak up the unemployed coming onto the market as a result of natural population growth and state enterprise reform. In the first half of this year, seven percent was posted and it is likely that the full-year target will be missed. Summer flood damage will cut upwards of 0.5 percent off the year total.
The new element in government thinking is the fear that once-acceptable GDP growth levels below eight percent are too low to meet current needs. Growth under seven percent takes China back to the inauspicious years of 1981, 1989 and 1990. The resonance is unsettling. The outlook for the close of the Ninth Five-Year Plan period (1996-2000) compares badly with its early years; in 1996 the government set a cautious growth target in line with today's, at eight percent. By the first half, China scored 9.8 percent.
Anchor on growth
The state sector remains the anchor on growth. State enterprises exacerbate a deteriorating record by taking a disproportionate share of investment and loans, despite year-on-year declining profits ?state industry suffering a drop of 36 percent in the first nine months of 1998. State sector industrial output rose a meagre 3.6 percent in the first six months. The government has an 11 percent target for total industrial output growth this year, but China only managed 7.2 percent in the first nine months year-on-year. The leadership in Beijing now knows that the mere fact of economic reform alone will no longer deliver the goods, and policy must fight in an ever tightening economic corner.
Defining GNP and GDP
Gross domestic product (GDP) is the sum of all goods and services produced every year within a country. It is equal to gross national product (GNP) minus income from abroad. Most countries, with the exception of the US, prefer to use GDP to GNP.
Until the late 1970s, China was economically isolated and inward looking. Not surprisingly, GNP and GDP were a close fit and the distinction has often appeared insignificant. Part of the problem is the unknown amount of Mainland assets held overseas (including Hong Kong).
GNP statistics have continued to shadow GDP as if to suggest that China has yet to earn noticeable factor returns. China has, in fact, committed increasing amounts of capital abroad, in areas such as mineral resource exploitation. In addition, there may be important untracked offshore capital and off-record holdings; there have been both legal and illicit movements of capital in and out of the Mainland throughout the reform period. For example, ?roundtripping' takes advantage of tax breaks for inward investment (much through Hong Kong), but a pro-portion may have strayed further afield. Quantity, destination and application, how-ever, are lost to official records.
Beijing's difficulty in monitoring asset transfers overseas led to the recent crack-down requiring state enterprises to repatriate funds. The government wants to reclaim billions of dollars sitting overseas but it has no idea exactly how much capital has been earned and what proportion has returned on a yearly basis to China. The crackdown has already netted more than US$750m.
The State Statistical Bureau still posts annual GNP data alongside GDP. Tightening audits and corporate strategies that take Chinese firms abroad should see GNP and GDP figures diverge in coming years. But for now GDP is the telling index, as Mainland economic activity dwarfs what may lie overseas.
Moftec says there are more than 5,000 Chinese-funded enterprises overseas, amounting to US$6bn in investment, in around 140 countries and regions. They are active in trade, processing, transportation, resource exploitation, medicine, health, and contacted labour and engineering services. Moftec also maintains, albeit on the basis of 'incomplete figures', that 80 percent are profitable. However it adds the time is not yet right for large overseas investment. Manufactures include motorcycles, televisions and other relatively low-end technology goods.
It is difficult to compare GDP in China with those of other countries, but an advance was reached in September with the publication of a new OECD work on the Chinese economy. It was written by Angus Maddison, author of the standard work World Economy in the 20th Century. Using quantitative measurement techniques, habitually applied to other OECD countries but never before to China, Maddison scrutinises official estimates to provide a reassessment of China's growth and levels of performance. For the first time, Chinese GDP growth figures have been recast to make them conform to international norms.
When comparing real values, exchange rates are regarded as a misleading indicator. The most appropriate and convenient measure is a 1990 purchasing power comparison in terms of US dollars, which has been constructed for 49 countries by the International Comparison Programme of the United Nations. China did not participate in this exercise but in 1997 another OECD economist (Ren) produced a similar estimate of Chinese/US expenditure levels for 1986.
Maddison takes Ren's estimates and uses a purchasing power parity (PPP) converter in order to make what he regards as more meaningful international comparisons.
Maddison cites four examples of why using exchange rate comparisons can give a very erratic and misleading picture of China's geopolitical weight.
-Mr. Chris Patten, the last British governor of Hong Kong, stated in an article in the Economist in January 1997, "that Britain's GDP today is almost twice the size of China's – China's GDP is about the same as those of Belgium, the Netherlands and Luxembourg combined." If he had used Maddison's purchasing power parity converter, he might have said (of the 1994 situation), "Britain's GDP is about one-third the size of China's – China's GDP is more than six-and-a-half times as big as the combined GDP of Belgium, the Netherlands and Luxembourg."
-Similarly, it might be argued that Hong Kong's GDP in 1994 was 24.3 percent of China's in 1994, using the official exchange rates to convert the official GDP estimates. However, the PPP conversion suggests that Hong Kong's GDP was actually just 4.2 percent of China's.
-An exchange rate conversion suggests that China has become a very open economy with 1996 exports equal to 18 percent of its GDP. Use of the PPP converter provides a very different picture a Chinese export ratio of 4.3 percent of GDP in 1995.
-The World Bank report China 2020, published in 1997, states that China's energy intensity (consumption per unit of GDP) is "between three and 10 times that of major industrial economies". This was presumably an estimate based on exchange rate converters. Maddison's own estimates do not support such an extreme statement. They suggest that China consumes more energy per unit of GDP than Germany and Japan, but less than Australia, New Zealand and the US and about one-quarter of the Russian level.
Chinese Economic Performance in the Long Run, US$33, is available from OECD publications distributors.
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