economic assignment due in 36 hours
fanbing910724
2.OverviewEc21282017.pptxChina’s Economic Performance
Ec 2128B/Economics of China
2017
Outline
How has China’s economy performed since the founding of the PRC?
Maoist era (1950s to late 1970s)
Reform era (late 1970s to now)
What level of economic development has China attained?
How do we assess a country’s economic performance?
What are some important facets of economic performance?
What are standard indicators of economic performance?
How do we assess a country’s economic performance?
In class we will discuss China’s performance in the following spheres:
national product: growth, level
structural change
productivity
quality of life, human development
Main Conclusions
1. GDP growth was respectable under Mao and exceptional during the reform era; GDP growth, however, has not been stable.
2. China’s economy has risen markedly relative to other countries, e.g., since 1980 from low‐income to upper‐middle‐income, and from about 10th to the 1st or 2nd largest in the world.
3. China has undergone considerable structural change in terms of output, employment, and integration with the world economy
4. Productivity growth was slow under Mao; improvement since.
5. Quality of life & human development have improved, but progress has been uneven.
BOTTOM LINE: Overall, the record is positive, even under Mao, but not spotless.
Outline
I. National Product: Growth and Level
A. Data & Measurement issues
B. GDP growth & level
II. Structural Change
III. Productivity
IV. Quality of Life
I. National Product: Growth and Level
Growth: How fast has China's national product grown, overall and in per capita terms?
Level: How big is China’s economy? How well off is China in per capita terms relative to other countries?
A. Measurement issues
Readings: II.A.(2).
Pop quiz gives three alternative estimates of China’s GDP per capita
More generally, different reports and studies give different numbers for China’s GDP level and growth
Which numbers are correct? Are China’s national account statistics reliable?
Reuters, 10 Dec 2010, reported:
“China's GDP figures are "man‐made" and therefore unreliable, the man who is expected to be the country's next head of government said in 2007, according to U.S. diplomatic cables released by WikiLeaks.
Li Keqiang, head of the Communist Party in northeastern Liaoning province at the time, was unusually candid in his assessment of local economic data at a dinner with then‐U.S. Ambassador to China Clark Randt, according to a confidential memo sent after the meeting...
The U.S. cable reported that Li...focused on just three data points to evaluate Liaoning's economy: electricity consumption, rail cargo volume and bank lending. "By looking at these three figures, Li said he can measure with relative accuracy the speed of economic growth. All other figures, especially GDP statistics, are 'for reference only,' he said smiling," the cable added.”
http://www.reuters.com/article/us-china-economy-wikileaks-idUSTRE6B527D20101206
Are China’s GDP statistics reliable?
Opinions differ
All economic statistics are man‐made
China’s GDP statistics are informative, but only IF you understand the measurement issues and biases
So: Start with a look at key measurement issues for China’s national account statistics
‘Wake Up Call’ Questions
WHO: Whose number is it--what is the source of the number?
WHEN: In what year was the number published?
WHAT: What prices were used to value output?
is growth measured in constant prices (it should be)? If so, what prices are used to deflate?
if comparing China’s national product to other countries, what exchange rate is used to convert China’s GNP to US dollars?
1. Whose number is it--what is the source of the number?
Official Chinese statistics: published by Chinese government agencies or offices
National Bureau of Statistics (NBS)
Other Chinese gov’t agencies
Ministries, Provincial Bureaus of Statistics, etc.
International Organizations (World Bank, IMF, UN): Usually based on official Chinese statistics (read the footnotes)
Alternative, independent estimates
Some researchers dissatisfied with official statistics, develop alternative estimates
Correct for problems with the official statistics such as
Incomplete coverage or undercounting, e.g., of services
Price distortions and dubious price deflators
Inconsistencies between local‐level and national‐level statistics
Possible political interference with statistical work
Alternative estimates still rely on official data: Start with the official GDP statistics, then make adjustments using other data published by the NBS or sometimes other Chinese sources
Different researchers use different approaches and produce different estimates; some are concerned more with level, others with growth rates
Examples: Most recent by Daniel Rosen & Beibei Bao (2015), also Carsten Holz, Harry X. Wu, Angus Maddison
Main thing to remember:
When you encounter an economic statistic for China, pay attention to the source of the statistic—read the fine print!
Is it an NBS statistic? Or from another official Chinese source?
If it is from an international organization or an alternative estimate, look to see where the number comes from, or how it was calculated.
Note: You should be familiar with basics of national accounts
2. When: In what year was the number published?
Quality and content of Chinese statistics has changed—the NBS has reformed and improved its statistical work over time.
The NBS has carried out several major revisions in GDP (and other) statistics.
General rule: Better to use GDP statistics from a more recent source or publication date.
A Brief History, Part I: NBS nat’l product stats and work style before 1980
China did not use the System of National Accounts (SNA) and did not produce GDP statistics
Used the Soviet “Material Product System” (MPS) of national accounts
Statistic closest to GDP and most commonly used was NET MATERIAL PRODUCT (NMP), sometimes called “National Income” (in Chinese, 国民收入)
NMP vs. GDP
Both are value-added measures—subtract intermediate inputs
NMP subtracts depreciation, GDP does not
MOST IMPORTANT: NMP excludes many services that are counted in GDP
Marxian/Soviet notion: only activities producing physical products are "productive"
Most services are not “productive”
Included in NMP: output of material/physical goods: agriculture, industry, and construction, + a few services
So-called “material” services, closely tied to the production and distribution of material goods: transportation, communications, and commerce
EXCLUDED from NMP: all other services
Excluded services
What are examples of some services that are excluded?
Personal services (haircuts, shoe repair, etc.)
Health care services
Education services
Police, military and security services
Entertainment
R&D services
Financial services
Housing/real estate services
NMP vs. GDP
Which is larger?
Which grows faster?
NBS work style, pre-1980
Under Mao, statistical work GREATLY influenced by politics
Statistic work closely tied to government planning
data reported up by lower-level economic units, and used to set plan targets, no confidentiality
mainly concerned about quantities, not prices; prices were set administratively
Economic activities outside formal planned sectors not measured fully
revised
22
A Brief History, Part II: NBS nat’l product stats and work style AFTER 1980
In 1980 China began to report GNP and GDP statistics
In 1995 officially switched to SNA, stopped publishing NMP data
But, statistical system not adapted to collect needed statistics in a market economy context
The NBS has step by step tried to address problems; the quality of national product statistics has improved
Problems still remain
revised
23
Changes in work style since 1980
NBS better funded, professional organization with trained statisticians
Less susceptible to political interference
Statistical laws call for unbiased, scientific reporting, and independence from government interference
Lower-level statistical agencies no longer report directly to local government officials
Chinese statisticians care about sampling, confidentiality, and accuracy
Continuing Problems
Politics still influence statistics
Not as bad as during Maoist era
Persistent problem with Services: Service sector numbers still weak, but numbers have improved
Undercounting of some other activities, e.g., R&D, real estate
Problems with prices (third wake‐up call question, below)
revised
25
Why does this matter?
You need to know the year in which the GDP statistics were published!
General rule: If in doubt, use statistics from the most recent possible publication date
Over time: Statistical work and data have changed and improved
Readings II.A (2) discuss such problems in more detail.
3. What: What prices were used to value output?
If calculating GDP growth, what prices are used to deflate GDP?
If comparing China’s national product to other countries, what exchange rate is used to convert China’s GNP to US dollars?
3. What: What prices were used to value output?
If calculating GDP growth, what prices are used to deflate GDP?
If calculating growth in GDP or GDP per capita, need to hold prices constant
This is done using a GDP price index, or price deflator
A bit of background…
China does not publish a GDP price deflator
It publishes GDP levels in current prices and it publishes a GDP index in constant prices (real GDP growth rate)
From this, can calculate an “implicit price deflator”
First, calculate the GDP index in current prices
Increase in price level = (current price GDP index) / (constant price GDP index)
Implicit price deflator = (constant price GDP index) / (current price GDP index)
revised
29
example
2010 GDP was 40.12 trillion yuan
2009 GDP was 34.09 trillion yuan
The 2010 constant price GDP index was 1.104 (i.e., 2010 “real” GDP growth was 10.4%)
Between 2009 and 2010:
a) What is the current price GDP index?
a) How much did the price level increase?
b) What is the implicit deflator?
example
2010 GDP was 40.12 trillion yuan
2009 GDP was 34.09 trillion yuan
The 2010 constant price GDP index was 1.104
Between 2009 and 2010:
a) What is the current price GDP index?
40.12/34.09= 1.177 (i.e., current price GDP increased 17.7%)
b) What is the price index?
1.177/1.104 = 1.066 (i.e., prices increased 6.6%)
b) What is the implicit deflator?
1.104/1.177=0.938
another example, for you to do
2012 GDP was 51.93 trillion yuan
2011 GDP was 47.16 trillion yuan
The 2012 constant price GDP index was 1.078
Between 2011 and 2012:
a) What is the current price GDP index?
b) How much did the price level increase?
c) What is the implicit deflator?
revised
32
Problems with China’s GDP price index and implicit price deflator
Inflation is understated
SO: real (constant price) GDP growth rates are overstated
Why? Reasons are complex, including:
Reporting units are supposed to submit output levels in constant prices, but they don’t
Difficulties in accurately capturing price changes associated with quality changes and new products
Manipulation of data, e.g., during 2006 GDP revisions
revised
33
Problems with China’s GDP price index and price deflator
Due to these problems, some researchers use alternative price deflators
E.g., use CPI rather than the implicit GDP deflator
General consensus:
Inflation is understated by 1 to 2 percentage points
Real (constant price) GDP growth is overstated by 1 to 2 percentage points
revised
34
Main Points
Be aware of this price issue. When you see a growth rate for China, pay attention to how the national product numbers are deflated (look at footnotes and notes to tables)
Due to this factor, official data overstate longer-term GDP growth by 1 to 2 % points
Note: problem is more pronounced during inflationary periods (before 1997, 2007-08, 2010-11).
3. What prices were used to value output?
if comparing China’s national product to other countries, what exchange rate is used to convert China’s GNP to US dollars?
Usual approach: Use posted or official exchange rate
Problems
Non-market (or quasi-market) exchange rate: Chinese government intervenes in valuation of the exchange rate, so it deviates from its market value
Purchasing Power Parity (PPP) problem: Even if the exchange rate were set by the market, it would not reflect the relative purchasing power of the yuan
PPP
Readings: II.A (1)
Market exchanges rates are determined by S & D of goods that are traded and are tradable
Exchange rates don’t reflect values of non-tradables
In LDCs prices of non-tradables are lower relative to prices of tradables
So: $1 can buy more in an LDC than in a DC (if converted at the market exchange rate)
PPP, cont.
Economists want to know the real purchasing power differences: Purchasing Power Parity exchange rates
Basic approach: Sophisticated comparative pricing exercise
Identify a representative basket of consumed goods, and find their prices in all different countries
Calculate the cost of this basket of goods in different countries
Use these costs to calculate exchange rates
e.g., the basket costs 440 yuan in China, $110 in US: 4 yuan has the purchasing power of $1
This gives an estimate of the PPP exchange rate
4.0 yuan per US dollar
PPP, cont.
PPP exercise is easier in theory than in practice
What basket of goods should be used? Consumption patterns differ across countries
Differences in quality of goods—quality matching difficult
Collection of detailed price data very time consuming and expensive, only carried out every few years (by Int’l Comparison Program ICP)
China PPP: Additional problems
China did not participate in ICP price collection and comparison exercise until 2005
Before 2005, no good price data available to calculate a PPP exchange rate for China
Earlier estimates based on partial data for a single year in the late 1980s, then extrapolated to later years!!!
So: earlier PPP exchange rate estimates were weak
After ICP 2005, new PPP exchange rates published for China (in 2007 or so). Result: Estimate of China’s PPP GDP reduced by about 40%!!
Post-2005 PPP estimates are better, but not problem free:
Main problem: ICP price data were collected for urban and suburban areas, not rural areas.
Prices are lower in rural areas
So, PPP adjustments understate purchasing power of the yuan, make China’s GDP look too low
Some researchers have published alternate PPP estimates (e.g., Subramanian)
2011 Revised PPPs
ICP did another round of price collection for 2011
China participated again
This time prices gathered in rural as well as urban and suburban areas
NEW PPP estimates published in 2014
China’s 2011 PPP exchange rate revised by 14%, from RMB 4=$1 to RMB 3.5=$1
China’s 2011 PPP$GDP revised UPWARD by 14%
Implies China’s 2011 PPP GDP = 90% of US GDP, not 80%
Summary: When you encounter a national product statistic for China, ask:
WHO? Whose number is it? Source of the number?
An official number (NBS)? An alternative estimate? If official, be aware of its shortcomings. If alternative, pay attention to the fine print.
WHEN? When was the number published?
Look carefully to see the year of publication: numbers published in different years may be quite different
Best to use most recent publication date, where possible
For NBS data after the last census (2009 or later)
For PPP numbers, after ICP 2005 (2007 or later)
WHAT? What prices are used?
Constant prices for growth rates—price deflator issue can cause overstatement of real GDP growth
Conversion to US $—official and PPP exchange rates give different numbers
Outline
I. National Product: Growth and Level
A. Measurement issues √
B. GDP growth & level
II. Structural Change
III. Productivity
IV. Human Development, Quality of Life
Readings: II.B
GDP growth & level lecture material: see Overview Tables file on course website
