China grapples with high GDP growth
China’s economists are grappling with the significance of the country’s newly stated economic size, warning that while its bigger status is winning accolades from investment banks, the new picture brings with it greater responsibilities. The world is likely to take a sterner look at how the country manages a whole range of sensitive issues, including environmental degradation, inefficient energy use and protection of intellectual property.
“With a larger economy comes a much larger responsibility,” says Chen Xindong, chief economist with BNP Paribas Peregrine Securities Ltd.” The government’s main statistical body, the National Bureau of Statistics (NBS), has revised the economic growth assessment for 2004 and announced new data for economic growth back to 1993. Using data from a 2004 economic census, statisticians have not only uncovered around $285 billion in previously unreported GDP but have now released new and higher rates of growth for the past 12 years.
The new figures mean China’s economic growth for 2004 was 10.1 per cent rather than the previously reported 9.5 per cent. Between 1979 and 2004, the country’s economy grew an average of 9.6 per cent a year, or 0.2 percentage points higher than originally stated. The 2004 GDP revisions have made China’s economy 17 per cent bigger, placing it ahead of Italy as the world’s sixth-largest economy and just behind France and UK. NBS has admitted that previous meth-odology for measuring economic growth was a legacy of central planning and skewed towards the industrial sector and with a tendency to overlook the output of services industries.
“The new revisions disp-erse one of the biggest worries about the sustainability of China’s fast growth because they show that the country’s economy is not over-dependent on investment,” says Tao Dong, an analyst. Service sector share in GDP for 2004 has risen from 31.9 per cent to 40.7 per cent, the NBS says, suggesting that China’s economic structure is becoming more balanced, with growth depending on private consumption as well as fixed investment.
Yet, even if investment is becoming slightly less important to the overall economy, its share in China’s GDP is over 45 per cent. This means Beijing would face continuous challenges in overcoming imbalances caused by this rapid investment growth such as environmental degradation and skyrocketing energy prices. Economists reckon that new GDP revisions would have little impact on the central government’s main economic priorities in 2006.
China revalued the yuan by 2.1 per cent in July but the market keeps on betting on further revaluation as the US continues to say the yuan is seriously undervalued and gives Chinese goods an unfair advantage in global markets. But a stronger yuan would undermine Beijing’s efforts to equalise income distribution and raise living standards in the vast and underdeveloped countryside.
Even a slightly stronger yuan would hurt Chinese farmers who are vulnerable to foreign competition because of their small farms and low productivity. Trying to dampen speculation of a further appreciation of the yuan caused by the upward revision of the economy’s size, a government economist was reported as saying that China was unlikely to move much on the currency front this year. — IPS