A few years ago, when I was a member of something called “The U.S.-China Strategic Review Commission” (or so I remember it), we issued reports on China’s economy, military strategy, and political situation. In each of the first two such reports (I left the Commission before the third came out, and confess that I haven’t kept up with them) we took pains to state that the “official” data issued by the Chinese Government were totally unreliable. Indeed, we stated explicitly that the numbers were simply made up.
Now the World Bank has issued a dramatic reevaluation of the dimensions of the Chinese economy, and the Bank says that previous estimates overstated the facts by forty percent, which is a hefty number.
Take a look at this excellent editorial from Investor’s Business Daily, while spells it out very clearly, and draws some very important conclusions.
It seems the Bank may have found a reliable metric for measuring the real output of a society, and I wonder if they’ve done the same for countries like Iran and Syria and Saudi Arabia. I’m going to ask them, but you might look around as well. We need what my kids used to call “true facts,” not official numbers, which are sometimes produced on demand to satisfy one audience or another.
Back when I was reporting on Italy–we’re talking mid-seventies–my editor demanded that I get the “real numbers” on the Italian economy, since the “official” numbers showed that Italy was dead on arrival. I told him the Italian economy was fine, based on walking tours of various neighborhoods in Rome, Florence and Bologna. But he wanted numbers. So I visited a friend who was then Minister of Finance, and I explained my mission. He smiled happily and asked me “what numbers would your editor like?”
Ever since, I’ve been touched at the faith people show in official data…
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winston:How could any body believe what the Chi-Coms tell us? China is a country where hundreds of millions of people live in extreme poverty. HIV/AIDS patients die every day without receiving any compassionate medical care. It’s a country where many many workers receive no more than 20 dollars a month. Poverty, AIDS and political discontent in China are big problems. They need to solve these problems before trying to claim “Super Power” status.
Dec 19, 2007 - 1:48 am Kerub:there were so many governements changes in the italian mid seventies.
If it was Visentini it was a good man.
ML:
It wasn’t visentini, but it was a good man. with a great appetite, like moi :=)
Dec 19, 2007 - 2:47 am Jon:Your article and the first commenter (Winston) are ignorant. The World Bank revision has nothing to do with Chinese government statistics. The World Bank revision is in regards to purchasing power parity (PPP). Chinese statistics are recorded in yuan, and is then converted to dollars by the current exchange rate, not by PPP. The only people overestimating China’s economy is the World Bank (when using the PPP values), not the Chinese government nor anyone else in finance and international trade.
Even with the revision, the World Bank estimate is actually still HIGHER (by 2x) than the Chinese government statistics.
I like your blog, but I’m quite disappointed by this article of yours.
Dec 19, 2007 - 6:25 pm David W. Lincoln:The United States, and other countries utilized massive efforts to get the data that was presented to the Politburo. What wasn’t counted on was that the data was corrupted.
Once again, we see history go round and round, for the past is prologue yet again.
Plus other comments which are germane.
Dec 19, 2007 - 7:34 pm Ran:Thanks for bringing attention to IBD’s article. Perhaps this metric indicator is what is called the “Big Mac Index” by a friend at Fisher College of Business. He’s just returned from China. I’ll pass him the link.
One question in my mind is the competence of the CIA… Its general reputation is one of a struggling, wussied, incompetent bureaucracy that can’t organize a Company picnic. I truly hope that it’s a deliberate book & cover discrepancy.
Dec 19, 2007 - 10:10 pm ed:Just remember, US intelligence predicts East Germany will have the world’s largest economy by 2010.
Dec 19, 2007 - 10:56 pm a Duoist:The World Bank revised its numbers based upon new numbers from the Chinese government, which are believed to be more reliable than the numbers the World Bank used before…from the Chinese government. The Bank (and the CIA)has been using PPP for years, so how much of a big deal is this?
Even if the size of the Chinese economy has been overstated, it is still the world’s second largest and still one of the fastest growing of the largest economies. Even if their reported 9.9% growth rate is exaggerated by 40%, and even if their past twenty-five years of compounded growth rates are overstated by 40%, China is still going to emerge from ‘Impoverished’ PPP and reach ‘Lower-Middle’ PPP by 2015, ‘Upper-Middle’ around 2023, and join the ‘Prosperous’ nations around 2030, which is barely four years later than previously forecasted.
An additional four years to the Chinese world-view is like worrying about spitting into the ocean; it is insignificant to the oldest continuous culture on the planet.
The sooner China becomes prosperous, the sooner the Chinese people become free. A small extension of merely four years will be well worth the delay. Our concern should be for China’s continued inability to implement institutional reforms, such as the Rule of Law, in order to handle the stresses which must result from an urban population of 550m that is wealthy and a rural population of 850m that will still be impoverished.
Dec 20, 2007 - 4:43 am Curt:Before 9/11, I veiwed China as America’s biggest challenge/opportunity (certainly not a “strategic partner”) If and when the war against radical Islam is over, China will still be there - and bigger and badder. So it’s good to read that it isn’t quite the economic dragon as described.
And by the way, look for China at some point to experience an econmic downturn ala Japan (though its official statistics may deny it).
Dec 20, 2007 - 4:30 pm Alireza:Dr. Ledeen,
Still I’m trying to find out what is the big deal about this China-thing that they’ve been pumping and hyping their economic situation. Your two previous articleS were making you breathless in making the point that the heart of capitalist and FREE system—U.S. government—is not telling the truth about Iran’s nuclear activities. So what is the big deal that China, like the U.S., wanting and wishing to manipulate the numbers to achieve what they wish to achieve.
Or, looking back at U.S. intelligence on Iraq that they were ready to pull the nuclear trigger and flatten the U.S. and the entire world! So the same intelligence community that now you criticize are saying otherwise.
I mean, your article is like saying all of us eat and all of us go to bathroom and now you are posting your finding in this regard!!! What is the big deal? China lies, U.S. lies, Iran lies, Israel lies, I lie, you lie, all of lie and misrepresent the facts and whatever we wish to achieve. So what is the big deal?
I mean, if your article was like the opposite that indeed China is telling the truth, then I find that to be very informative. I don’t even want to get into the way U.S. government reports the unemployment rate here, which might makes Chinese pumping and hyping like child’s play.
Dec 20, 2007 - 5:10 pm