China Now World’s Sixth Largest Economy
China on Tuesday raised its estimate of the output of the world’s fastest-expanding major economy by a sixth, a revision that leaves growth better balanced but may increase pressure on Beijing to let the yuan rise faster.
The new estimate, based on a vast nationwide census, hoists China above Italy into sixth place in the world economic rankings of 2004 output, measured in dollars at market exchange rates.
What’s more, based on exchange rate movements and relative growth rates in 2005, economists calculate that China by now has risen to fourth place, ahead of France and Britain, and behind only the United States, Japan and Germany.
The National Bureau of Statistics (NBS) said the revision reflected better information on the services sector and on private firms, unearthed during a year-long survey for which the government mobilized 13 million data-gathers — one in every 100 Chinese.
For investors, the bigger economic pie means some ratios that had looked worryingly high, such as investment or bad loans as a share of GDP, now look more sustainable.
“The revised statistics show that China’s economic structure is more reasonable and healthy than the previous figures showed,” Li Deshui, the head of the statistics office, told reporters.
The NBS now estimates that GDP in 2004 totaled 15.99 trillion yuan, 16.8 percent more than its previous estimate.
Using the end-2004 exchange rate of 8.276 yuan per dollar, that comes to $1.93 trillion, compared with $1.67 trillion for Italy, according to World Bank figures.
Fast-growing service industries such as telecommunications, retailing and real estate accounted for 93 percent of the revision and boosted the service sector’s share of economic output in 2004 to 40.7 percent from 31.9 percent.
Industry’s hitherto outsized share of GDP dropped to 46.2 percent from 52.9 percent, while the share taken by farming and fisheries shrank to 13.1 percent from 15.2 percent.
The changes mean China will need to lean less on ever-faster industrial output, and the ever-rising demand for energy and raw materials it entails, to sustain the 9 percent-plus GDP growth rates of the past three years.
“Given that the size of the services sector is much bigger than initially estimated, the sustainability of growth in China is much better than many people thought,” said Frank Gong, chief economist at JPMorgan Chase in Hong Kong.
Because policy makers now know that growth is less reliant on export-orientated industries, they could be more relaxed about letting the yuan rise, which would favor consumption and services growth, Gong said.
“It will ease further some of the concerns within China on a strong yuan,” he said.
Jim Walker with brokers CLSA in Hong Kong said the fact that China is now almost certainly the fourth-biggest economy could raise hackles in Washington, where U.S. Senator Charles Schumer is threatening to reintroduce a bill that would impose a 27.5 percent tariff on Chinese imports unless the yuan is revalued.
“This gives him much much more ammunition,” Walker said.
Big revisions to GDP are not uncommon, even among countries with sophisticated data-gathering systems.
Misha Belkindas with the World Bank’s development data group said Indonesia revised up its GDP 17 percent in 2004, Italy by more than 17 percent in 1987 and Norway by 11 percent in 1995.
Still, Jun Ma with Deutsche Bank in Hong Kong agreed that a larger GDP could lead to more foreign pressure on China to act as “a more responsible” large nation by letting the yuan rise.
Since it was revalued by 2.1 percent in July and depegged from the dollar, the yuan has risen just a further 0.49 percent against the U.S. currency.
The share of Chinese exports in GDP has now fallen to 29 percent from 34 percent, so the revisions could ease policy maker concerns that a rapid rise in the yuan, also known as the renminbi, would sap growth and increase unemployment, Ma said.
“This suggests that further flexibility of the renminbi may not be viewed as dangerous as before in terms of its impact on the overall economy,” he said.