Study Finds Chinese Economy a Third Smaller Than Claimed
In a report released on June 20th, the business research organization Conference Board recalculates Chinese gross domestic product going back to 1952. Economist Harry Wu estimates that China from 1978 to 2012 grew an average of 7.2 percent a year. Beijing’s National Bureau of Statistics reports 9.8 percent average annual growth during that period.
Wu believes that official numbers for 1952 to 1977 are generally accurate, at least when considered over the period as a whole. China’s figures, therefore, have become less reliable over time.
The discrepancy in the 1978–2012 period, which roughly conforms to the so-called “reform” era, is largely the result of Beijing’s inadequate adjustment of nominal results to account for price changes. Recently, many economists, most notably Christopher Balding of Peking University, have come to similar conclusions, that Beijing underestimates inflation when it calculates what is known as “real”—i.e., price-adjusted—GDP.
Wu’s work supports that of others who see a Chinese economy that could be a third smaller than Beijing claims. His findings, therefore, can affect our notions of which Asian nation grew the fastest or which is now the world’s second-largest economy. Hint: the Conference Board is about to become very popular in Japan.
Yet Wu’s work has implications that are far broader. Yes, an economy’s size matters, but perhaps more important is volatility. Analysts have long suspected that Beijing has smoothed results, reporting less growth in robust periods and more in down times, similar to what some corporations are accused of doing with their earnings. Wu’s calculations show far more volatility than official estimates, “suggesting,” he writes, “that the Chinese economy is more vulnerable to external shocks than the picture painted by the official GDP estimates.”
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