China's Economy Larger Than First Thought
Service sector skyrockets as manufacturing output actually dips, government says
BEIJING, China - 12/29/05 - China's economy is much bigger and less export-dependent than previously reported, according to new data that analysts said may ease fears its roaring growth is unsustainable - and, at the same time, boost the current rate of direct foreign investment in the country's economy.
A new survey of China's economy boosted its official output for 2004 by 16.8% by taking into account emerging service businesses, a previously underreported sector, the government said, adding that the service sector's share of the economy rose sharply during the year, while that of the manufacturing sector actually shrank.
The results show mainland China replacing Italy as the world's 6th-largest economy, trailing Britain and France.
China would jump to No. 4, behind the US, Japan and Germany, if it factored in Hong Kong, a Special Administrative Region (SAR) of China, which reports economic figures separately.
The figures mean China's export and investment rates are smaller as a percentage of the total economy - possibly easing fears that they were unsustainably high, the government said.
The figures were released by the National Bureau of Statistics, which said it surveyed 30 million businesses, including restaurants, karaoke bars, and others in booming service industries.
The new data put China's 2004 gross domestic product, or GDP, the broadest measure of trade in goods and services, at nearly $2 trillion, up nearly 285 billion from previously reported numbers.
"Based on these figures, we can have even more confidence in our long-term, fairly fast and sustained economic growth," Li Deshui, director of the statistics bureau, said at a recent news conference.
Even more important could be the finding that Chinese consumers are spending much more than previously thought, fueling economic growth and reducing reliance on exports, economists said.
Based on the new data, exports account for 29% of the economy rather than the previously stated 34%, cutting China's "very high export dependency," Jun Ma, chief economist for Greater China at Deutsche Bank, said in a research report to the firm's clients.
Ma's report said such evidence of strong consumer spending could encourage planners to stimulate even more growth in services, creating new opportunities for foreign investors.
The government will be revising GDP growth figures back to 1993, said Li.
The new figures should not affect China's policy on the politically sensitive exchange rate of its currency, he said. China's trading partners complain that its government-controlled exchange rate is too low, giving Chinese exporters an unfair price advantage.
And Li emphasized that despite the upward revision in sheer economic size, China's vast population of 1.3 billion people means it still ranks below the top 100 countries in output per capita.
"We still have a long way to go to catch up with the developed countries," he said.
Economists have long said China understated the size of its economy due to its failure to collect statistics accurately from small, private businesses, especially in services.
The key problem was a system that focused on manufacturing and relied on each company to keep an employee to report statistics - something few private businesses in China do.
Other governments have reported similarly large jumps in output when they switched economic measures, including Indonesia's 17% increase in 2004 and Norway's 11% in 1995, according to the World Bank.
Li said Beijing will have to wait until it compiles figures for 2005 to figure out its current rank among the world's economies.
The new analysis comes as the Paris-headquartered Organization for Economic Cooperation and Development reports that in 2004 China surpassed the US as the world's leading exporter of high-tech goods like laptop computers, mobile phones, and digital cameras.
Official data from the Paris-based OECD - a free-market organization whose 30-country membership does not include China - highlighted just how fast China has emerged as an economic power that the US and other long-industrialized countries can no longer ignore.
China exported $180 billion worth of information and communication technology (ICT) goods in 2004, compared with US exports of $149 billion, the OECD said, adding that the country was likely to have kept the newly conquered top spot in 2005 too, but hard evidence "would take many months to collect."
The US was world leader in 2003 with $137 billion of exports of ICT goods, which include video equipment and electronic components, followed by China with $123 billion, it said.
China, the OECD said, used to depend on Europe and the US for microchips and other components for high-tech goods, but that it was now increasingly self-sufficient and turning more to neighbors.
"The data show a shift towards more trade between China and other Asian countries, with a corresponding decline in ICT imports to this region from the European Union and the US," it said.
China was now turning to suppliers in Japan, Taipei, South Korea, and Malaysia.
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