Seeking truth from facts

How big is China’s economy? And how many poor people does it have?

The questions are simple, but I can assure you the answers are not easy. And a prominent economist in Washington D.C. has kicked up a firestorm this week interpreting new data.

Albert Keidel, a former U.S. Treasury Department official now with the Carnegie Endowment for International Peace, wrote a column in the Financial Times suggesting that China’s economy is 40 percent smaller than widely thought.

One can interpret a little noticed study released over the summer by the Asian Development Bank, Keidel said, to mean that China is smaller and poorer than people generally think.

Anybody who’s tasked with nailing down facts about China can relate to uncertainty about the economy. An editor once called and asked for data for a chart about China’s per capita income. I went to the World Bank website and drew from their statistics. The editor later demanded to know why the World Bank and CIA figures differed so much. It’s true. The CIA and World Bank are about $2,000 apart on their figures for per capita income, using what economists call “purchasing power parity,” or PPP, a mechanism to iron out exchange rate distortions, etc.

This may just seem to be tooting about lies, damn lies and statistics.

But it really matters because China’s economic size in the world economy and its levels of poverty can have major consequences.

Keidel says the new interpretation shows that some 300 million Chinese live below the World Bank’s dollar-a-day poverty line – three times larger than currently estimated – but a great improvement over the more than 500 million poor that existed in the 1980s.

"These calculations are not just esoteric academic tweaks. Based on the old estimates, the US Government Accountability Office reported this year that China’s economy in PPP terms would be larger than the U.S. by as early as 2012. Such reports raise alarms in security circles about China’s ability to build a defense establishment to challenge America’s. Well-informed analysts know that PPP calculations are a poor measure of a country’s potential military base, but with the corrected China PPP statistics, the whole question is moot. China is just not that big now and will not get that big any time soon."

Keidel’s essay juxtaposed curiously with the release in Washington Thursday of the latest report by the U.S.-China Economic and Security Review Commission, a congressional advisory panel known to be somewhat hawkish. The report said widespread Chinese industrial espionage is “the single greatest risk” to the security of U.S. technology.

A leading hawk on China in Congress, Rep. J. Randy Forbes, R-Va., said in a statement after the report’s release: “China’s intelligence activities have aggressively acquired U.S. advanced technology, often before it is fully developed here, by using a sophisticated network of low-profile civilians, academics and students embedded in U.S. society.  It is estimated that between 2,000 and 3,000 Chinese front companies are operating every day in the U.S. to gather secret information about our government and our companies.”

So there you have the enigma of China: By one count, it is smaller and poorer than you thought. By the other, it is more dangerous than you imagined.

Former Paramount leader Deng Xiaoping used to like to say, “seek truth from facts.” Problem is, it’s hard to know what the facts are.

Comments

[A B]

How about seek truth from walking and looking around?

This is a variation of the imperial inspection tour that emperors have used from the beginning of Chinese civilization to see what the actual facts are because they don't trust the reports they receive.

Suppose you did do a tour, you will probably find vast parts of China that is by and large, poorer than Taiwan, Hong Kong, Malaysia, Singapore, and have living standards comparable with large parts of Indonesia, Vietnam, etc.

Now go look up what the GDP per capita is in those countries.....

What you have is a bimodal distribution where there are some part of China (Shanghai, Beijing, Shen zhen) that have achieved a living standard comparable to a low income developed economy (UK, Portugal, Spain, etc.) while the vast majority of China outside of 4 to 7 major centers are living much better than before, but not that well.

[A B]

I wonder when will the Chinese exceed the French in their programs to do industrial espionage on countries like the USA?

Long ago, a bunch of french agents rented a large house within sight of the range where Boeing is doing tests on their new airliners. They then set up an antenna farm where the unencrypted telemetry from the craft was systematically recorded.

Before you know it, the advanced features of the Boeing started showing up in Airbuses.

Then there is the rule of thumb, never travel to France with a device with memories that you don't want to share with DSGE. You can be reasonably assured that copies of your phone's contacts, iPod content, copies of your laptop hard drive, etc. are all being made.

Come to think of it... I hope the Chinese haven't taken fromm learning from France!

[greg]

"One can interpret a little noticed study released over the summer by the Asian Development Bank, Keidel said, to mean that China is smaller and poorer than people _generally_ think." (I added the emphasis)

How about

"One can interpret a little noticed study released over the summer by the Asian Development Bank, Keidel said, to mean that China is smaller and poorer than a few people in CIA and World Bank think."

China does not suddenly become poorer or richer because of this study. Most people (or generally) people say China is a $2.6 trillion economy '06 GDP), fourth in the world and will soon surpass Germany this year or next to become the third largest in the world.

This study hasn't changed this fact, has it?

[Pffefer]

China's simply can't win. It's either weaker, smaller than you thought or worse, more evil, more menacing than you thought. I think the Chinese would be perfectly happy with the "smaller, poorer China" notion, hoping that the US and its western stooges will leave them alone, finally. But then, China is the favorite to replace the USSR as America's next "Evil Empire" so America's supremacy and its sense of moral authority (that it think it has) can be justified. Poor Chinese people. They just can't win. No matter what they do, no matter how their country is, they will rub the US the wrong way.

Surrender to America!

[Ding]

Having a small economy is like having small penis or breasts?

Now if there was a similar distribution of large sized penises and breasts by race as there is in economies....

[nanheyangrouchuan]

Wasn't it six or nine months ago that China's "black economy" was said to propel it to the level of Japan? The fact is since Beijing doesn't even have reliable stats from the provinces, who can't get reliable stats from the counties and townships, there is no way in hell some foreigner with a big excel sheet can make any determination about the true state of China's economy.
Though an educated guesstimation certainly suggests that China's economy is nearly completely severed between 1/5 to 1/4 being "haves" with expendable cash and the rest are living a subsistence life.