China Moves to Fourth in GDP Rankings

amicute SG

China is likely to declare itself the world's fourth largest economy next week, after a widely expected revision of its annual gross domestic product figures.
China is likely to declare itself the world's fourth largest economy next week, having leapfrogged Italy, France and Britain, after a widely expected revision of its annual gross domestic product figures.

Economists say the National Bureau of Statistics (NBS), which is due to release part of the results of its first national economic census on December 20, is likely to put a much bigger figure on the size of China's services sector.

Chinese Premier Wen Jiabao is reportedly telling the East Asia Summit Leaders Dialogue in Kuala Lumpur on Monday that China gross domestic product (GDP) reached US$2 trillion in 2004 following an average economic growth rate of a meteoric 9.4 per cent rise over the past 27 years, since 1978.

Not only has China grown far more quickly than Italy, France and Britain this year, but the yuan has risen about 2.5 percent against the dollar, further boosting its output when measured in dollars. The euro and sterling, by contrast, have fallen.

"China could squeak in ahead of Britain even without a revision," O'Neill said. "It just goes to show how much it's contributing to the world economy."

Economists said an upward revision of 20 percent, as reported by the Hong Kong-based South China Morning Post, would be in line with their own estimates -- or could even be too modest.

Chen Xingdong, chief China economist for BNP Paribas Peregrine in Beijing, said he would not be surprised if the NBS revised up its estimate of China's GDP, which totalled $1.65 trillion in 2004, by 15 percent to 20 percent.

China's number-crunchers have failed to capture the boom in small and medium-sized industrial enterprises, Chen said.

"We always argue that it has been largely underestimated for a long, long time," he said. "Even a number like 15 percent is not that large for us."

Dong Tao, chief economist for non-Japan Asia at Credit Suisse First Boston (Hong Kong) Ltd., said China's GDP would still be understated even if it was revised up by $300 billion.

"There's a massive under-reporting of GDP in the service sector," Tao said.

He cited the relatively low quality of data collection in China as one reason for that. Economists have long pointed to shortcomings in China's statistics, due to a central planning legacy that put priority on collecting data on the production of physical goods from state-owned enterprises.

Tao said another reason was that many service enterprises fall through the statisticians' net because they fail to report income for tax reasons.

"Just take a walk into any restaurant in Shenzhen or Beijing. If you buy a meal without asking for the receipt, for tax reasons these things will not be in China's GDP," he said.

boy in blues SG

http://www.taipeitimes.com/News/editorials/archives/2005/12/12/2003284109

Revaluing the yuan helps no one

By Lo Chu-ping

Monday, Dec 12, 2005,Page 8
From US President George W. Bush through Congress and the Senate, there have been repeated calls for the Chinese to devalue the yuan in order to ease the current imbalance in Sino-US trade. It seems that China's undervalued currency is the sole culprit responsible for the US' gargantuan trade deficit.

The US trade deficit with China hit a record high of US$162 billion last year, a figure that constituted one-fourth of the US' total deficit for that year. It is expected to widen to US$200 billion this year.

However, export figures from China's customs authorities amount to only one-half of those of their US counterparts, which is a result of differences in how the two countries' customs authorities perceive Hong Kong. At the same time, the US$162 billion figure only includes goods, but not services and trade. The US actually has a trade surplus with China when it comes to intellectual property and other services.

Furthermore, the four Asian tigers have significantly reduced their historically huge trade surpluses with the US by switching the export of their goods to China. This has led to Hong Kong actually having a trade deficit with the US.

In other words, the US$162 billion figure represents the Greater China economic region's overall surplus with the US to a certain extent. As a result, the actual Sino-US trade gap has been exaggerated. Even if these figures were correct, balancing the US-China trade deficit would only take care of a quarter of the total, leaving it with a large chunk of the overall deficit untouched.

An even more important question is whether an appreciation of the yuan against the US dollar would really eliminate the US' trade deficit with China.

In the 1980s, prior to the rise of China, Japan was the main source of the US' trade deficit, totaling somewhere around US$40 billion. Back then, Japan brought the US to its knees in the automobile, semiconductor and home appliance sectors and the slogan "Japan First" could be heard everywhere.

On Sept. 22, 1985 the US and the European Community forced Japan to sign the Plaza Accord, which held that the Japanese yen was undervalued and that this was the main cause of the US' trade deficit. Japan therefore had to remove its dollar peg and let the yen appreciate against the US dollar. The language used in the accord was frighteningly similar to that now being used to force China into taking action over the yuan.

The difference is that back then, Japan was militarily and diplomatically dependent on the US, and did not have the power to say "No." After signing the Plaza Accord, the yen appreciated from ?250 to the US dollar to its current level of around ?100 to the dollar.

So how much did the US' trade deficit with Japan fall as a result of this 150 percent appreciation? The answer is that it has slowly increased to US$75 billion. Compared to 1985, the appreciation of the yen has increased the deficit by an additional 50 percent, even though the Japanese economy has been stagnant for over a decade. Still, we don't hear any one chanting the slogan "Japan First" today.

For the US, although its deficit problem remained unresolved, it at least accomplished its goal of eliminating the threat of Japanese economic hegemony.

Given this example, it is not surprising that China is not willing to listen to the US. The US' purpose in pushing for an appreciation of the yuan has nothing to do with resolving its trade deficit with China, since a devaluation will not resolve the issue. What the US probably wants to resolve is the threat posed by China's rising international status.

There are three main reasons why China will continue to resist US pressure for another two to three years and only then accept a token appreciation.

First, China currently has more than 60 million workers in its state-owned enterprises (SOE) and more than 300 million farmers and agricultural workers. By comparison, the 100 million-strong US work force only includes about 1 million farmers. The redundant personnel in China's SOEs and the excessive number of farmers that have to be given new employment number in the hundreds of millions, and this would be a hard task for any government.

China needs rapid economic growth and expanding export markets to create employment opportunities. If the Chinese yuan is allowed to appreciate too much, it could cause economic and export growth to slow. The enormous numbers of unemployed that would result would plant the seeds of social unrest and could possibly destabilize the government.

Second, the Chinese high-tech industry is still lagging behind multinational companies in terms of quality, but its prices are very competitive. Devaluing the yuan would harm the price advantage that China's high-tech industry currently enjoys, and this would probably kill off any hopes China has of competing internationally.

Third, if the Chinese yuan were allowed to float freely, China's weak financial system would become a target for international vultures. Besides, China is speeding up its financial reforms and the four biggest state-owned banks have already been listed on stock markets outside of China, which has attracted investments from international banks. They have also opened up management and board positions in order to become stronger and to help adapt to international demands.

Compare this to Taiwan's financial reform where domestic companies simply merge with one another and are unable to gain any international influence.

It is understandable that China will not allow its currency to fluctuate too much before carrying out its financial reforms so it can avoid attracting the speculators. Maybe China will allow the yuan to float by 2008 if it is able to complete its financial reforms in time.

China needs time, but that is something the US is not prepared to give. If the US really wants to resolve its trade deficit with China, two good approaches would be to abolish the Wassenaar Arrangement and remove restrictions on high tech exports to China, but that would speed up China's technology development.

It is obvious that this is a win-win solution to the problem. So it is difficult to understand why the US persists in pushing for the revaluation of the yuan when that will harm China while bringing no benefit whatsoever to the US itself.

Lo Chu-ping is an assistant professor of economics at National Cheng-Kung University.

amicute SG

too long

Gun SG

Some economist estimate China's economy size in terms of real GDP in USD may exceed that of the US or Japan within the next 30 years.

That may some a too bullish on China's rate of growth, but with this latest confirmation, it is not too far fetch.

The global change has already begun back in 1979 since Deng reversed the closed-door policy and this will accelerate even more in the next decade.

The sleeping Dragon has only just awaken.

boy in blues SG

http://www.iht.com/articles/2005/12/11/business/oecd.php

China overtakes U.S. as high-tech supplier
By David Lague International Herald Tribune

SUNDAY, DECEMBER 11, 2005

BEIJING: After almost a decade of explosive growth in its electronics sector, China has overtaken the United States as the world's biggest supplier of information technology goods, according to a report by the Organization for Economic Cooperation and Development.

Data in the report, to be published on Monday, show that China's exports of information and communication technology - including laptop computers, mobile phones and digital cameras - increased by more than 46 percent to $180 billion in 2004 from a year earlier, easily outstripping for the first time U.S. exports of $149 billion, which grew 12 percent from 2003.

The figures compiled by the OECD, based in Paris, also reveal that China has come close to matching the United States in the overall value of its trade in information and communications technology products. The value of China's combined exports and imports of such goods soared to $329 billion in 2004 from $35 billion in 1996. Over the same period, the value of U.S. information technology trade expanded at a slower rate, to $375 billion from $230 billion.

To some industry experts, the report is more evidence that China has made progress in its long-term plan to upgrade the capacity of its manufacturing as it strives to become a major economic power.

"It confirms that the Chinese economy is really moving up the value chain from simple manufactured goods like textiles, shoes and plastics to very sophisticated electronics," said Arthur Kobler, a business consultant in Hong Kong and former president of AT&T in China.

The most spectacular demonstration of China's ambition to become a consumer electronics heavyweight came in May this year when Lenovo, the Chinese computer maker, paid $1.75 billion to buy IBM's personal computer unit.

Also, China's efforts to impose its own technology standards across a range of consumer products, including mobile phones, digital photography and wireless networks, are widely interpreted as a strategy to dominate the global market for information technology goods.

Some analysts say they believe that Chinese technology exports would have overtaken the United States much earlier without restrictions applied by Western countries to China on the transfer of so-called dual-use technologies - which can be used for both civilian and military ends - to China after the 1989 Tiananmen crackdown.

"Without this trade barrier, China's information technology industry would have grown much faster," said Li Hui, head of China research for Investment Bank CLSA Asia-Pacific Markets.

The OECD report could also heighten fears among some critics that China's drive to build a powerful information technology and consumer electronics sector could have far-reaching military consequences for the United States.

China's military industry works closely with information technology companies and the government's research and development sector in what some analysts have described as a "digital triangle" that supports the country's rapid military modernization.

"The People's Liberation Army is moving very quickly to adopt practically every information-related aspect of military technology that the U.S. is pursuing at this time," said Rick Fisher, vice president of the International Assessment and Strategy Center in Washington.

boy in blues SG

continued from my previous post.

In a report to Congress in November, the U.S.-China Economic and Security Review Commission said the Pentagon had become reliant on an increasingly globalized private sector for some critical military technologies.

"This is taking place as China's position at the center of the global technology supply chain grows, raising the prospect of future U.S. dependency on China for certain items critical to the U.S. defense industry as well as vital to continued economic leadership," the report said.

It is foreigners who have driven much of the growth, with heavy investment from global giants like Intel, Nokia, Motorola, Microsoft and Cisco Systems.

Figures from the Chinese Ministry of Commerce show that companies that had received overseas investment accounted for almost 90 percent of 2004 exports of high technology products.

And foreign companies are increasing their research and development in China in a bid to generate real innovation. "Ten years ago, it was done just to please the Chinese, but now these R&D facilities are integral to their global manufacturing," said Kobler, the consultant.

Leading integrated circuit manufacturers, however, have avoided setting up fabrication facilities in China in order to protect their chip designs and manufacturing technology. This means that China is still heavily dependent on imports of advanced chips it needs to assemble electronic products.

But Li, the CLSA research chief, said, "Most equipment makers are getting close to cutting-edge technology."

Recently, China has unveiled a supercomputer capable of 11 trillion calculations per second, making it among the fastest anywhere. Also, Tsinghua University has produced a microprocessor that matches Intel's Pentium II.

For military analysts like Fisher, the combination of domestic innovation and the spill-over effect from foreign research and development means that China is now poised to make rapid strides in defense technology. "China is quickly becoming an innovator and, as we know, it has the money to turn those ideas into weapons," he said.

boy in blues SG

http://www.businessweek.com/bwdaily/dnflash/dec2005/nf20051216_7200_db016.htm

China's Even Heftier Economy
A new economic census is expected to show healthier, more robust private-sector growth and a wealthier consumer class

Everybody knows China is big. But guess what: It's even bigger than has been generally believed. Beijing is abuzz with rumors that on Dec. 20, the country's statistics mavens will revise mainland gross domestic product upward, by around 20%. The revision means China's output actually totals $1.74 trillion, about $300 billion more than previously thought. Advertisement

That would make China the world's fourth-largest economy, suddenly overtaking Italy, France, and Britain. And it would peg the mainland's output at 18% that of the U.S. and 30% as large as Japan's, "bringing us several years closer to the day [still a couple of decades out] when China's GDP overtakes that of Japan and the U.S.," says Stephen Green, an economist at Standard Chartered in Shanghai.

KEEPING IT CONFIDENTIAL. The startling shift comes from China's just-finished economic census. Though the survey data haven't been officially released, many prominent China watchers know the broad outlines of the results -- and feel generally pleased with what they're hearing. The poll, the mainland's first such endeavor in almost a decade, is expected to reveal the true size of the private sector.

China's rapid shift toward a market economy had prevented Beijing from getting a handle on just how big its economy has grown. And those problems worsened because of underreporting among private service enterprises -- such as restaurants, hairdressers, and travel agencies -- seeking to avoid taxes. But over the past year, millions of poll-takers fanned out across China, offering business owners assurances that the information gathered would remain private -- a promise that by most accounts has been kept. That, officials say, has allowed them to cobble together a much truer picture of the mainland's roaring economy.

Among the important findings: China's economy has gotten not only bigger but also healthier. For starters, concerns that the mainland economy relies too much on heavy investment spending should abate. The new numbers will likely show that China's investment as a portion of GDP could be as low as 37%, rather than the 46% assumed previously. That puts China's figure in line with the likes of South Korea, Japan, and Hong Kong at comparable stages of development.

GREATER PURSE POWER. "Over the last few years, everyone has been very concerned about overinvestment in China," says Green. "This brings China closer to the norm for a globalizing country."

China's services sector amounts to much more than most thought, too. Services are expected to account for as much as 40% of GDP, compared with last year's official 33%. It also proves consumption is much larger, perhaps 60% of GDP. That will certainly please Chinese economic policymakers, who have long aimed to wean the mainland from excessive reliance on investment and exports, and boost the spending power of the Chinese consumer.

"This undercuts the common view that Chinese consumers are chronically weak," Jonathan Anderson, chief economist for Asia at UBS Securities, wrote in a Dec. 14 report.

SIGNS OF AFFLUENCE. There's even good news for China's long-troubled banking sector. Official figures show that nonperforming loans added up to $158 billion at the end of September. That's still huge, but a bigger economy makes the problem more manageable. With the revised figures on GDP, China's dud loans would represent 7% of GDP, compared with the 8.25% that had been previously thought.

Similarly, China's ratio of external debt to GDP falls to about 10% in 2005, from 13.8% at the end of last year. "People have been very concerned about the rate of lending in China and the growth of nonperforming loans, and this shows they are moving in the right direction," Green says. "Worries about a debt crisis or a banking crisis in China are currently not that serious."

Finally, the census shows Chinese people are wealthier. That may come as little surprise to anyone who has seen all the new Buicks (GM ), Hyundais, and Chevys on the streets, as well as the Motorola (MOT ), Nokia (NOK ), and other cell phones in people's pockets.

Now, it appears the numbers will start to better match the perception. China's 2004 estimated per capita urban GDP of $1,277 will grow to $1,738 for 2005. That newly revealed spending power will certainly delight multinationals diving into the mainland market, though it -- and the rest of the new data -- may also spur increased hand-wringing in global capitals over China's meteoric rise.