BEIJING - China is
likely to declare itself the world's fourth
largest economy soon, leapfrogging Italy, France
and Britain, helped by a likely huge revision of
its gross domestic product figures.
Economists say China's National Bureau of
Statistics (NBS), which is due to release part of
the results of its first national economic census
on December 20, is likely to assign a much bigger
figure for the size of the services sector.
The South China Morning Post, citing
unnamed economists, reported on December 13 that
the agency would probably revise GDP by as much as
US$300 billion, or about 20% of 2004 output. A
revision of that magnitude could catapult China
from the world's
seventh-largest economy into
the fourth spot, now occupied by Britain.
Jim O'Neill, chief global economist at
Goldman Sachs in London, said China could attain
that status even without a big GDP revision, based
on growth rates and currency changes in 2005. Not
only has China grown far more quickly than Italy,
France and Britain this year, but the yuan has
risen about 2.5% against the dollar, further
boosting its output when measured in dollars.
The euro and British pound, by contrast,
have fallen against the dollar. "China could
squeak in ahead of Britain even without a
revision," O'Neill said. "It just goes to show how
much it's contributing to the world economy."
Economists said an upward revision of 20%,
as reported by the South China Morning Post, would
be in line with their own estimates - or could
even be too modest. Chen Xingdong, chief China
economist for BNP Paribas Peregrine in Beijing, said he would
not be surprised if the NBS revised up its
estimate of China's GDP, which totaled $1.65
trillion in 2004, by 15% to 20%. China's
number-crunchers have failed to capture the boom
in small and medium-sized industrial enterprises,
Chen said. "We always argue that it has been
largely underestimated for a long, long time," he
said. "Even a number like 15% is not that large
for us." Dong Tao, chief economist for non-Japan
Asia at Credit Suisse First Boston (Hong Kong)
Ltd, said China's GDP would still be understated
even if it was revised up by $300 billion.
"There's a massive underreporting of GDP in the
service sector," Tao said.
He cited the
relatively low quality of data collection in China
as one reason for that. Economists have long
pointed to shortcomings in China's statistics, due
to a central planning legacy that put priority on
collecting data on the production of physical
goods from state-owned enterprises. Tao said
another reason was that many service enterprises
fall through the statisticians' net because they
fail to report income for tax reasons. "Just take
a walk into any restaurant in Shenzhen or Beijing.
If you buy a meal without asking for the receipt,
for tax reasons these things will not be in
China's GDP," he said.
Still, Tao said
that, on CSFB's calculation, China would probably
need another year before it could catch up with
Britain, whose GDP totaled US$2.14 trillion in
2004, according to the World Bank. France came
fifth in the World Bank's rankings, with 2004 GDP
of US$2.00 trillion, and Italy sixth, with an
output of US$1.67 trillion. The United States,
followed by Japan and Germany, topped the list.
Service sector
underestimated China's, particularly that
of tertiary (service) industries, might have been
underestimated, says Qian Yingyi, a famous Chinese
economist.
Qian's view is based on a
comparison of related tertiary industry data
between China and India. The development stage in
India is broadly similar to that of China. But the
service sector contributed 51% of India's GDP in
2002, 16.4 percentage points higher than the
figure for China in the corresponding period. This
indicates there might be a mistake in China's
statistics, he points out. According to official
data, the tertiary industry only contributes 32%
of China's GDP.
