We made fun the other day of the $280+ billion (Economist) revision of China’s GDP, some 17% or so, and wondered what the heck was going on. Would you invest in Microsoft or Apple Computer if their published accounts were off by nearly 20%? Holy Enron! Our view of China’s GDP reports has been a little jaundiced since last year, when we read that the PPP (purchasing power parity) GDP of China was $6.5 trillion, more than half that of the US, which we found not credible in the extreme. You may remember our piece on this.

It turns out that accurate measurement of China’s GDP has been a simmering topic in academic economist circles for years. A major issue has been the undervaluing of the rural economy outside of central bureaucratic control — par for the course of both developing economies and particularly Communist ones where small-scale private enterprise was deliberately concealed and the accounting system ignored it. Here is an article from UPenn on PPP and other matters, and one from The Review of Income and Wealth that specifically addresses the understated level and overstated growth of China’s GDP.

We have not completed our research, but we wonder what the is the political and business significance of such a substantial upward revision of China’s GDP — it comes at a time when Chinese Communist leaders are promising more income to the rural masses, and when economists and businessmen are questioning the rather high ratio of investment in China to increases in GDP. Hmmmm. It may be coincidence, but didn’t both those problems just improve as if by magic?

This entry was posted on Sunday, January 1st, 2006 at 10:28 am and is filed under business, China, General. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.