A teeny tiny $2 trillion mistake in China’s GDP
You may recall our piece about China’s cooked books and bad loans, or IBD’s editorial to the same effect. You may recall the controversy about whether China’s bad loans were $1.2 trillion or a mere $400 billion. Here’s today’s little accounting issue — a $2 trillion hiccup.
We told you that the PPP measures of GDP were all about making poor countries feel better about themselves, not to mention helping to keep ruling oligarchies in place. Here’s the latest on China, with its amazing 40% downward revision in PPP GDP, via FT:
when the World Bank announces its expected PPP data revisions later this year, China’s economy will turn out to be 40 per cent smaller than previously stated. This more accurate picture of China clarifies why Beijing concentrates so heavily on domestic priorities such as growth, public investment, pollution control and poverty reduction. The number of people in China living below the World Bank’s dollar-a-day poverty line is 300m — three times larger than currently estimated. Why such a large revision in the estimates of China’s economic condition? Until recently, China had never participated in the careful price surveys needed to convert accurately its gross domestic product into PPP dollars.
PPP is not the official accounting system for GDP of course, but a $2-3 trillion downward revision in GDP, by any measuring system, is no laughing matter. This disturbing accounting change furthermore gives credence to the speculations of IBD and ourselves, among others, that China’s cooked books are a potentially very serious problem. HT: Bruce Kesler
Question: are China’s accounting problems like America’s subprime mortgage problems, in that nobody cares about them until, suddenly, for some reason, they appear to become very important all at once — and then they are seen as a huge problem that no one should have overlooked while it was taking place?