A few words about China's GDP ...

After China's first comprehensive business survey in a number of years, officials say its economy is much bigger and far less dependent on exports than previously believed.


A new survey of China's economy boosted its official output for 2004 by 16.8 percent by taking into account emerging service businesses, the government said. It said services' share of the economy rose sharply, while that of manufacturing fell.
The results show China's mainland replacing Italy as the world's 6th-largest economy, trailing Britain and France. China would jump to No. 4, behind only the United States, Japan and Germany, if it added in Hong Kong, which reports its economic figures separately. […]
The figures were released by the National Bureau of Statistics, which said it surveyed 30 million businesses, including restaurants, karaoke bars and others in booming service industries.
The new data put China's 2004 gross domestic product, the broadest measure of trade in goods and services, at nearly 16 trillion yuan ($2 trillion). That was up 2.3 trillion yuan ($285 billion) from numbers previously reported. […]
Economists have long said China understated the size of its economy due to its failure to collect statistics accurately from small, private businesses, especially in services.
The key problem was a system that focused on manufacturing and relied on each company to keep an employee to report statistics, something that few private businesses do.
Other governments have reported similarly large jumps in output when they switch economic measures, including a 17 percent increase for Indonesia in 2004 and 11 percent for Norway in 1995, according to the World Bank.
[A Chinese] statistics official said Beijing will have to wait until it compiles figures for 2005 to figure out its current rank among the world's economies.
"But undeniably they're going to be the second-largest economy in the world in a few years," said David Cohen of the consulting firm Action Economics in Singapore. "And then the question is, At what point do they surpass the U.S. in size?"
There's been a lot of coverage of this story over the past few days. But one thing I haven't read anywhere is this: Nobody knows how big China's economy is. Economic figures only count monetized transactions. If it doesn't have a dollar-value -- or in this case a Yuan-value -- it doesn't exist. China has a huge rural population that still uses barter for many transactions as well as an informal economy of unknown size. The value of all that? Your guess is as good as mine.

Eileen Rabach, an old professor of mine in international political economy, said she wouldn't be surprised if there were trillions of dollars worth of uncounted transactions in China.

And let me also highlight a statistical point: GDP is a simple way of looking at an economy: it's the sum of all transactions within the country's borders. But adjusted for the cost of living (known as GDP "purchasing power parity"), China already has the second-largest economy in the world -- and twice the size of Japan's -- at over seven trillion dollars (the U.S. is at just under $12 trillion using this measure).

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