Is China's GDP Really As Large As Claimed?

[CAC1001]

So I was reading that one of the reasons economists were fooled for so many years regarding the state of the Soviet economy was that the GDP figures published for/by the Soviet Union included all of the extremely low-quality things the Soviet Union produced. As far as the Soviet economists were concerned, cars from private companies or cars from a government facility are both equal as far as GDP numbers went (so comparing say fifty cars produced by the Soviets and fifty cars produced by GM was pretty equal).

As a result, the Soviet economy appeared inflated and much more productive than what it actually was.

So I was thinking, China we know just recently surpassed Japan in terms of the size of their economy. However, China's economy also produces a lot of subpar junk at the moment. China manufactures things for Western companies, but in terms of designing and producing their own stuff, "Made in China" doesn't have a great reputation at the moment.

No one in the West buys Chinese-made, Chinese-brand automobiles yet, or Chinese-designed and made computers or electronics or appliances at the moment, and so forth. So what I was thinking is, could China's GDP numbers actually be inflated? Could their economy be appearing larger than what it actually is right now?

For example, I would imagine that in calculating their GDP, Chinese economists probably don't really much rate the difference between a cheaply-made low-quality Chinese vehicle and a much higher-quality Western-made vehicle. Or maybe even real-estate. Chinese buildings are not built to the same standards as in other countries (some have collapsed, one building rolled over because the foundation was so lax I saw in a video), yet I would bet their buildings are counted in the GDP with the same equivalence of buildings put up in the Western nations.

What do you guys think?

 

[nismaratwork]

I wonder if the Chinese even know, much like the Soviet politburo never really got to grips with reality?

 

[Ivan Seeking]

CAC1001, I would say you're dead on.

Obviously the US has some serious problems, but in it's own way, China reminds me of a house of cards. When they have come to terms with building and safety standards, food safety, production quality, human rights and worker's rights, and environmental concerns, to name a few, then we can talk about GDP in a meaningful way.

 

[ThomasT]

I've spent about an hour looking up and reading about Chinese manufacturing, etc., etc. Haven't found any global figures that I really trust yet. For $4000 I can buy a, supposedly, accurate and up to date analysis of Chinese industry.

They seem to be anywhere from 50 to 100 years behind the US in the things that Ivan mentioned. But this is 2010, so their stuff is subject to greater scrutiny. Inferior products can't compete successfully in a global market. The Chinese are in the process of adapting to various pressures.

While CAC1001's contention about a currently inflated Chinese GDP seems correct, it also doesn't seem that important, because, despite Ivan's 'house of cards' association, it would seem that, given China's natural and human resources, and apparent trends, there isn't any reason to assume that China won't continue to advance, at least in the near term.

But they apparently have quite a way to go yet:

'Made in China' labels don't tell whole story
http://www.nytimes.com/2006/02/08/business/worldbusiness/08iht-trade.html

Myth of China's manufacturing prowess
http://helenhwang.net/2010/03/myth-of-manufacturing/

 

[nismaratwork]

I've spent about an hour looking up and reading about Chinese manufacturing, etc., etc. Haven't found any global figures that I really trust yet. For $4000 I can buy a, supposedly, accurate and up to date analysis of Chinese industry.

They seem to be anywhere from 50 to 100 years behind the US in the things that Ivan mentioned. But this is 2010, so their stuff is subject to greater scrutiny. Inferior products can't compete successfully in a global market. The Chinese are in the process of adapting to various pressures.

While CAC1001's contention about a currently inflated Chinese GDP seems correct, it also doesn't seem that important, because, despite Ivan's 'house of cards' association, it would seem that, given China's natural and human resources, and apparent trends, there isn't any reason to assume that China won't continue to advance, at least in the near term.

But they apparently have quite a way to go yet:

'Made in China' labels don't tell whole story
http://www.nytimes.com/2006/02/08/business/worldbusiness/08iht-trade.html

Myth of China's manufacturing prowess
http://helenhwang.net/2010/03/myth-of-manufacturing/

Natural resources... if you include arible land... is getting more and more scarce, while the population grows. Since eating money is notoriously unhealthy, the Chinese are staring a number of problems in the face that only luck has spared them so far.

China's problems have more to do with disease, education, farming practices, and climate change (AG or NOT, doesn't matter) that's killing huge areas of former farmland. A country that can't feed itself isn't really free... a problem the Japanese struggle to keep in mind. The result: We get everything China makes, but good luck exporting that delicious Japanese rice, grown in Japan.

China is suffering from problems that a brief reading of Chinese history will show are not new, and one that is: Their military basically takes care of the guns, AND the money... so... yeah. What's keeping them in line may or may not suffice over time.

 

[CAC1001]

Anyone think China's economy will surpass the United States anytime soon?

 

[gravenewworld]

GDP per capita is a much better stat to use if you are trying to measure wealth comparatively. Even so, the US still has 3x's the bigger economy and is still a behemoth that carries a lot of weight. Chinese business, in many cases, has almost no respect for human rights, the environment, worker's rights, and quality control. China will improve its image overtime, but the unfettered growth is bound to cool down once the Chinese start practicing some level of business ethics. China is quickly losing vast amounts of arable land because of unrestricted capitalism and ignorance of its impact on the environment. A severe famine would make the Chinese economy come to a crashing halt.

 

[nismaratwork]

GDP per capita is a much better stat to use if you are trying to measure wealth comparatively. Even so, the US still has 3x's the bigger economy and is still a behemoth that carries a lot of weight. Chinese business, in many cases, has almost no respect for human rights, the environment, workers rights, and quality control. China will improve its image overtime, but the unfettered growth is bound to cool down once the Chinese start practicing some level of business ethics.

Chinese business also suffers from ownership by the military, which is not a politically sustainable model.

 

[CAC1001]

GDP per capita is a much better stat to use if you are trying to measure wealth comparatively. Even so, the US still has 3x's the bigger economy and is still a behemoth that carries a lot of weight.

According to the CIA World Factbook, China's economy in terms of Purchasing Power Parity is $9.854 trillion, while measured by the official exchange rate, it is $5.745 trillion. Which is the one we use when determining how large China's economy is?

 

[PhilKravitz]

According to the CIA World Factbook, China's economy in terms of Purchasing Power Parity is $9.854 trillion, while measured by the official exchange rate, it is $5.745 trillion. Which is the one we use when determining how large China's economy is?

PPP is the right way to go. But figuring out the right exchange ratio for PPP is somewhat black magic. From what my son says after living in China for a year he would use (1 yuan = 2 dollar PPP for everyday food items).

 

[CAC1001]

If China's GDP is then $9.8 trillion, it would be more than half of the U.S. economy in size then...? (or am I missing something?)

 

[PhilKravitz]

If China's GDP is then $9.8 trillion, it would be more than half of the U.S. economy in size then...? (or am I missing something?)

You are correct.

If we dig into the details of what in fact is produced; how much value should we give to two trillion dollars of financial serves versus say construction of houses and offices and factories. Production of bombs for the military versus the education of science students at university.

 

[gravenewworld]

If China's GDP is then $9.8 trillion, it would be more than half of the U.S. economy in size then...? (or am I missing something?)

Yes, but again, total GDP measurements don't say much when it isn't viewed relative to the size of the population. The EU has a bigger economy than the US, but they also have 200 million more people, hence less wealth to go around than in the US.

 

[CAC1001]

True, but total GDP could count with regards to the ability of the country to spend on things like military expenditures for example.

 

[ThomasT]

GDP per capita is a much better stat to use if you are trying to measure wealth comparatively.

The OP is just concerned with whether China's GDP is being inflated and why/how. Anyway, GDP per capita isn't a good measure of per capita wealth. So, and especially for this thread, GDP per capita wouldn't give any more useful info than just GDP.

... total GDP measurements don't say much when it isn't viewed relative to the size of the population.

Total GDP measurements ---> total GDP. The question is, how is China measuring/calculating its GDP.

Economy of the United States

Economy of the People's Republic of China

 

[xxChrisxx]

Anyone think China's economy will surpass the United States anytime soon?

Soon, probably not. At some time in the future, it's inevitable. Long term there is no substitue for manpower in development.

People bash the 'Made in China', but this will change over time. Up to now they played to their strengths, dirt cheap unskilled labour allowing mass produced cheap products. Asia as a whole and China specifically are beginning to producue competetive engineered products. Currently they are still seem to be reverse-engineered knock offs, but it's a start.

You've got to remember that China has only been industrialised for about 50 years, the US since early/mid 1800s and the UK since late 1700s. That is a pretty significant headstart, but one that China is catching up to pretty quickly.

 

[mugaliens]

People bash the 'Made in China', but this will change over time. Up to now they played to their strengths, dirt cheap unskilled labour allowing mass produced cheap products. Asia as a whole and China specifically are beginning to producue competetive engineered products. Currently they are still seem to be reverse-engineered knock offs, but it's a start.

Over time, as their economy grows, they'll suffer the same economic limitations as all growing economies experience.

Fortunately, that's a self-limiting one, and markets will even once again.

Provided these changes in disparity occur somewhat slowly, we're all ok. I think that's one of the most heavy concerns on all world leaders today. It's when they take place rapidly that huge diversions, corruption, and war (localized or otherwise) breaks out).

 

[nismaratwork]

Soon, probably not. At some time in the future, it's inevitable. Long term there is no substitue for manpower in development.

People bash the 'Made in China', but this will change over time. Up to now they played to their strengths, dirt cheap unskilled labour allowing mass produced cheap products. Asia as a whole and China specifically are beginning to producue competetive engineered products. Currently they are still seem to be reverse-engineered knock offs, but it's a start.

You've got to remember that China has only been industrialised for about 50 years, the US since early/mid 1800s and the UK since late 1700s. That is a pretty significant headstart, but one that China is catching up to pretty quickly.

With huge caveats such as:

-No military coups
-None of China's historically famous plagues, now with over 1 billion hosts!
-War
-Disintegration of the state apparatus in favor of a return to rulership by Cantons, with some central regions, but no longer a unified country (most of Chinese history)
-Drought or Famine don't horribly limit growth or lead to instability and dependence
-Continued rampant overpopulation is a risk factor for all of the above.

 

[WhoWee]

So I was reading that one of the reasons economists were fooled for so many years regarding the state of the Soviet economy was that the GDP figures published for/by the Soviet Union included all of the extremely low-quality things the Soviet Union produced. As far as the Soviet economists were concerned, cars from private companies or cars from a government facility are both equal as far as GDP numbers went (so comparing say fifty cars produced by the Soviets and fifty cars produced by GM was pretty equal).

As a result, the Soviet economy appeared inflated and much more productive than what it actually was.

So I was thinking, China we know just recently surpassed Japan in terms of the size of their economy. However, China's economy also produces a lot of subpar junk at the moment. China manufactures things for Western companies, but in terms of designing and producing their own stuff, "Made in China" doesn't have a great reputation at the moment.

No one in the West buys Chinese-made, Chinese-brand automobiles yet, or Chinese-designed and made computers or electronics or appliances at the moment, and so forth. So what I was thinking is, could China's GDP numbers actually be inflated? Could their economy be appearing larger than what it actually is right now?

For example, I would imagine that in calculating their GDP, Chinese economists probably don't really much rate the difference between a cheaply-made low-quality Chinese vehicle and a much higher-quality Western-made vehicle. Or maybe even real-estate. Chinese buildings are not built to the same standards as in other countries (some have collapsed, one building rolled over because the foundation was so lax I saw in a video), yet I would bet their buildings are counted in the GDP with the same equivalence of buildings put up in the Western nations.

What do you guys think?

Selling that junk is allowing them to acquire currency - to buy the the technology and marketshare. They don't need to build from the ground up.
http://www.steelguru.com/chinese_news/China_outbound_acquisitions_to_increase_50pct_in_2011_-_PwC/186908.html

"He said that outbound mergers and acquisitions with Chinese buyers rose more than 30% last year to a record 188 with a combined deal value of USD 38 billion. He added that the deal flow was driven by China’s search for natural resources to meet demand in its growing economy and desire to bring know-how in industries such as automotive and machinery back to China."

 

[CAC1001]

-Drought or Famine don't horribly limit growth or lead to instability and dependence

Is this sarcasm or literal? (just asking because I can't tell). I would think sarcasm...?

-Continued rampant overpopulation is a risk factor for all of the above.

Can overpopulation really become a problem? I mean planet Earth itself doesn't produce enough food to feed the world as is, humans, through our technological advancement of agriculture, do this.

 

[nismaratwork]

Is this sarcasm or literal? (just asking because I can't tell). I would think sarcasm...?

Literal. Example: http://210.101.116.28/W_kiss9/58900327_pv.pdf
You can't be a superpower if you can't feed your citizens... which is where...



Can overpopulation really become a problem? I mean planet Earth itself doesn't produce enough food to feed the world as is, humans, through our technological advancement of agriculture, do this.[/QUOTE]

In the world as a whole? I would guess that down-regulating factors such as disease and war would take care of that, and I have no idea what it means for a planet to be "overpopulated". A COUNTRY on the other hand, bound by borders and the need to provide jobs, services... a reason to BE a country... does have to worry about this. In fact, China has been pretty concerned about this issue, without achieving their goals, for quite some time.

Remember, you can't really threaten to pull the economic plug on someone who can starve you; you can try to invade them, but that represents another set of problems. You can ration, but again, the size of China in terms of volume of people, and actual land is an issue.

 

[CAC1001]

Literal. Example: http://210.101.116.28/W_kiss9/58900327_pv.pdf
You can't be a superpower if you can't feed your citizens... which is where...

Right, you had said that drought and famine don't horribly limit growth or lead to instability and dependence... If that was literal, you're saying that regardless of drought or famine, the country will still be a superpower...?

 

[nismaratwork]

Right, you had said that drought and famine don't horribly limit growth or lead to instability and dependence... If that was literal, you're saying that regardless of drought or famine, the country will still be a superpower...?

Errr... that was part of a list in the form of: Unless the following occurs: No military coups... etc... I believed the meaning was obvious in context.

 

[CAC1001]

AHHHH, okay, so if phrased as:

"As long as drought or Famine don't horribly limit growth or lead to instability and dependence."

 

[mheslep]

Before the Made in China label draws too much derision, recognize that everyone's Ipods and Iphones undergo final integration and assembly in China.

 

[mheslep]

Anyone think China's economy will surpass the United States anytime soon?

At 8% for China, 2% for the US, in 2019 China will have a larger PPP GDP. While per capita equivalence is much, much farther out, there is no meaningful "per capita military capability", there's only "military capability" funded by revenues from the total GDP.

 

[CAC1001]

At 8% for China, 2% for the US, in 2019 China will have a larger PPP GDP.

This is assuming China continues to grow at 8% and the U.S. only at 2%. Hopefully at least America will recover to around 4% GDP growth.

While per capita equivalence is much, much farther out, there is no meaningful "per capita military capability", there's only "military capability" funded by revenues from the total GDP.

That's what I mean, if China has a GDP equal to America's or higher, then they can afford to spend more on their military right, regardless of per capita GDP.

 

[drankin]

No one in the West buys Chinese-made, Chinese-brand automobiles yet, or Chinese-designed and made computers or electronics or appliances at the moment, and so forth. So what I was thinking is, could China's GDP numbers actually be inflated? Could their economy be appearing larger than what it actually is right now?

China considers Taiwan to be part of the Republic. Taiwan is an enormous supplier of electronics like cell phones and computer hardware to the West. Just take a quick look at where your motherboard came from. Good chance it is from Taiwan. With a quick search I didn't see any exact percentage of the total GDP Taiwan contributes, but I imagine it's significant and considered in their numbers.

 

[CAC1001]

China might consider Taiwan part of them, but I do not think Taiwan does. I think it would be rather wrong for China ot include Taiwan's GDP into their own right now.

 

[drankin]

China might consider Taiwan part of them, but I do not think Taiwan does. I think it would be rather wrong for China ot include Taiwan's GDP into their own right now.

I agree, but I'm sure they do.

 

[nismaratwork]

I agree, but I'm sure they do.

It does sound about right for the gerontocracy currently in charge of, 'The Middle Kingdom'.