After three decades of extraordinary economic development, China is shifting to a slower and more sustainable growth path. Further reforms are now needed to ensure that future growth is resilient, inclusive and green, according to the OECD’s latest Economic Survey of China. The OECD forecasts that China’s GDP will grow by 7% this year and 6.9% in 2016.
“Following one of the most tremendous economic expansions in world history, China’s gradual transition towards a ‘new normal’ of slower, more sustainable growth is to be welcomed” OECD Secretary-General Angel Gurría said. “China knows how to grow at a blistering pace. The challenge now is to ensure that future growth occurs on a more durable and inclusive footing.”
The ongoing transition of the Chinese economy is multifaceted – from rural to urban, investment to consumption and manufacturing to services – and will require unwavering commitment to structural reforms.
* OECD position is China's economy has managable downside risks
* Daniel Rosen, University of Columnbia and Center for Strategic and International Studies (CSIS), has analyzed that China's services sector is underestimated because of flawed accounting
Shifting from Soviet style national accounting to UN style national accounting shows a bigger and more balanced economy
An assessment of China’s nominal GDP undertaken by my colleague Beibei Bao and Daniel Rosen, in partnership with CSIS, provides new insights into China’s economy that modify this picture. Our independent calculations suggest that services exceeded industrial activity as early as 2009. This means the services sector—which is, by any reckoning, the future of China’s growth—does not suffer from insurmountable structural constraints so much as accounting problems that left it undercounted until recently, and most likely still today.
As a planned economy, China used the national accounting system favored by the Soviet Union to count GDP. The “Material
Production System” (MPS) excludes most services from the definition of economic production. The MPS legacy saddled China with institutions ill equipped to capture service value when the country transitioned to the UN-endorsed System of National Accounts (SNA) in 1993. That institutional weakness, including staffing, inadequate legal and political mechanisms to assure integrity, and data quality concerns, still prevents China from fully measuring its service industries. Using real-economy metrics, comparator country data patterns, and adjustments based on the latest international GDP accounting standards, we recalculated the size of China’s GDP in 2008. Our revisions indicate the need for a 12.9 to 16.0 percent upward restatement of 2008 results, which means RMB 4 to 5 trillion in missing output—$600 to $700 billion at exchange rates prevailing then. The good news from our recount is that China’s economy was already more balanced between services and industry than commonly thought.
The 2013 GDP base was revised, but only by 3.4 percent. The adjustment would have needed to be two to four times that amount if all current national accounting shortcomings were addressed. The choice not to make the full revision last month, despite previous intentions to do so, raises questions about Beijing’s motives. Why would authorities prefer to report a smaller economy than modern accounting suggests? Will statisticians use the unreported adjustment to “fluff up” GDP growth results in the difficult years of economic adjustment to come, to hide the full extent of a necessary downturn? None of us can be sure.
Read more »
