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Blinded by China's false statistics

 

By

Jonathan Power
TFF Associate since 1991

Comments directly to JonatPower@aol.com

November 30, 2007

LONDON - Beware of extrapolation, a British Chancellor of the Exchequer once remarked: It can make you go blind. It’s about time this little piece of wisdom was applied to China. But there seems to be a mental block that inhabits newsrooms, academic common rooms and the bureaucracies of many governments. This is despite the pioneering research done by the likes of Professor Lester Thurow and the conclusion of long-time Hong Kong-based China watcher, economist Jim Walker, of Asia’s leading independent investment bank, CSLA, both of whom have rigorously deflated the wild claims of China’s official growth statistics, which once again recently got the big headline treatment. Walker concludes that official GDP statistics are a “fantasy world”.

In China’s provinces the statistics are notoriously unreliable, as local officials inflate them to avoid being punished for poor management of the economy. For its part the central statistical office calculates GDP through counting increases in value-added production even though much of its statistical information comes from state-owned enterprises which provide poor data. Walker routinely deducts 2% from official Chinese growth statistics. This summer in a little noticed announcement the Asian Development Bank lopped 40% off previous Chinese income per head statistics. That is some revision.

Even if we use Chinese statistics, the overall rate of progress between 1978 and 2003 is not overwhelming. In that period China’s per capita GDP grew at a compound rate of 6.1%. This gives an increase of 337% over a quarter of a century. Compare this with Japan’s which increased by 490% between 1950 and 1973. Both South Korea and Taiwan have done even better the former with 7.6% compound growth a year between 1962 and 1990 and Taiwan with 6.3% between 1958 and 1990, the years when they were bursting through the industrialization sound barrier.

The statistics we do have show up some near insuperable problems. One is that 40% of Chinese bank loans are considered “bad”, a gigantic misallocation of capital. Another is that China could grow old before it grows rich. Not very long ago China was one of the world’s most youthful countries. But the one-child policy has had an enormous impact. As early as 2015 China’s working age population will begin to fall. By 2040, just a decade before China hopes to be a middle-income country, it will have 100 million citizens over 80. That is more than the current worldwide total.

Arnaud de Meyer, deputy dean of Insead, the European business school, author of a study on Asian innovation, writes that in relation to its huge development needs China may already have too little skilled manpower. McKinsey, the management consultancy, reports that only 10% of China’s graduating engineers are good enough to work for foreign companies. It is not surprising that China’s software industry lags behind India’s because of its fragmented structure and poor management.

India is far ahead in this regard. India has “an enviable pool of high quality talented professionals”, reports a study by Mercer Human Resource Consulting. Moreover, wages among professionals are much lower in India than China. Living costs in Chinese cities are much higher than India’s.

It is not surprising that foreign direct investment is now falling in China, albeit from very high levels (and at the same time capital flight is on a fast rise), while India’s is increasing. If one looks at the non-ethnic Chinese component of foreign investment China does less well than booming Brazil.


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U.S. companies earn something over $8 billion a year from their business and investments in China. But they earn around $7 billion from Australia, a market of only 19 million people and over $9 billion from Taiwan and South Korea with a combined population of 90 million. From Mexico they earn over $14 billion. Moreover, the American companies which have made big money from China are those like Wal-Mart, the retailer. They are the ones who buy from it rather than the ones who invest in it.

Angela Merkel, the Chancellor of Germany, has taken a lot of flack from China and from her Social Democratic partners in government for talking to the Dalai Lama and being vocal about Chinese human rights failings. She should have no fear- China needs Germany much more than vice-versa.

It has always been strange. It is quite pathetic that Western countries regularly betray each other, and, in so doing, the human rights activists inside China, in an effort to better position themselves in this quite modest market place. If Western governments could stand shoulder to shoulder and say once and mean it, “Stop using economic and trade threats: you are in no position to do so, it is unacceptable behaviour”, Beijing would get the message.

But perhaps after years of propaganda on China’s “remarkable future progress” we are already blind.

 

Copyright © 2007 Jonathan Power

 

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Jonathan Power can be reached by phone +44 7785 351172
and e-mail: JonatPower@aol.com


Jonathan Power 2007 Book
Conundrums of Humanity
The Quest for Global Justice


“Conundrums of Humanity” poses eleven questions for our future progress, ranging from “Can we diminish War?” to “How far and fast can we push forward the frontiers of Human Rights?” to “Will China dominate the century?”
The answers to these questions, the author believes, growing out of his long experience as a foreign correspondent and columnist for the International Herald Tribune, are largely positive ones, despite the hurdles yet to be overcome. Martinus Nijhoff Publishers, London, 2007.

William Pfaff, September 17, 2007
Jonathan Power's book "Conundrums" - A Review
"His is a powerful and comprehensive statement of ways to make the world better.
Is that worth the Nobel Prize?
I say, why not?"

 

Jonathan Power's 2001 book

Like Water on Stone
The Story of Amnesty International

Follow this link to read about - and order - Jonathan Power's book written for the 40th Anniversary of Amnesty International

 

 

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