Understanding China, One Blog at a Time

An American in China

China and “Fudging” Her GDP Numbers

Posted by w_thames_the_d on February 15, 2011

Excerpt from here, by KW Dam

“A reason for being cautious about past Chinese growth rates is that, as Alwyn Young points out, China has used a different method from most countries for arriving at national GDP; it adds up local production reports to reach a national total, with predictable incentives for local overreporting when actual growth is weak and underreporting in periods of overheating in the economy. Young also cautions that even assuming the correctness of Chinese nominal national income statistics, inflation was underestimated by Chinese authorities so that real GDP growth in the 1986–98 period was overstated by 3.0 percentage points a year.21 Using Young’s analysis, the real growth in GDP during that period was 6.2 percent rather than 9.2 percent. Annual growth of more than 6 percent is still, of course, an extraordinary achievement but would not lead to the kind of assumptions about the future that underpin so much contemporary discussion. Over twenty-four years, the compounding of 9 percent growth yields an eightfold increase in total growth; compounding of 6 percent growth would yield only a fourfold increase—resulting in a Chinese economy only half as much larger than the base year.”

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