China: Grappling With High GDP Growth

{josquote}Following revelations of China's rediscovered prosperity, 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{/josquote}.

"With a larger economy comes also larger responsibility," says Chen Xindong, chief economist with BNP Paribas Peregrine Securities Ltd. "Following the publication of the new data, the international community would have greater expectations from China regarding its responsibilities and duties of a world player."

The government's main statistical body, the National Bureau of Statistics (NBS), has revised the country's 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 US dollars 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, according to a statement posted on the NBS website on Jan. 9.

The 2004 GDP revisions have made China's economy almost 17 percent bigger, placing it ahead of Italy as the world's sixth-largest economy and just behind France and Britain. Some estimates predict China would surpass France when the 2005 figures for economic growth are published later in the month.

The changes followed the country's first-ever nationwide economic survey, which involved more than 10 million data gatherers and statisticians. It revealed that the service sector played a much greater role in China's economy than previously believed -- a fact which economists say is a sign of its maturing and evolving away from the heavy industrial basis of central planning.

NBS has admitted that previous methodology 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. As a result, GDP growth was understated almost each year for more than a decade, the NBS said.

"The new revisions disperse 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, analyst with Credit Suisse First Boston Securities Ltd.

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 increasingly 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 more than 45 percent, which is high by any standards. Further, this figure continues to rise because of difficulties in slowing or blocking investment projects undertaken by many local governments, which advocate high growth rates rather than the quality economic growth that is supported by the central authorities.

It all 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 -- namely reducing the income gap in the interest of social harmony and reversing the environmental damage done by years of growth at any price.

"GDP is a reflection of one country's economic power but GDP doesn't solve the problems of income distribution," says Fan Wenzhong, economic analyst with Lehman Brothers Securities Asia Ltd. "The central government knows it has to boost consumption in relation to investment but this can only be done by raising living standards of the masses."

The government's new campaign to raise income levels in the country's vast rural areas would make Beijing resist pressure from Western trading partners to bring further appreciation of the Chinese currency, the yuan.

China revalued the yuan by 2.1 per cent in July but the market keeps on betting on further revaluation as the U.S. 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 Chinese 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 senior government economist was reported as saying China was unlikely to move much on the currency front this year.

"The yuan is unlikely to appreciate significantly in 2006," Ba Shusong, finance research analyst with the State Council's Development Research Centre was quoted as saying by the official Shanghai Securities News, last week. (END/IPS/AP/IP/IF/DV/MD/AB/RDR/06)

Source: IPS - Inter Press Service News Agency

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