[China’s GDP figures have been questioned by many parties. Zhu Tian, an economics professor at China Europe International Business School, wrote for Observer. He also agreed that China’s GDP growth rate may be overestimated. However, his research found that the growth rate of China’s per capita GDP and per capita disposable income in the past 30 years, whether using the data of independent scholars and institutions or his own estimation, far exceeded that of all developed countries and most developing countries. The article points out that the rapid growth of China is an economic mystery, which cannot be simply explained by factors such as digital fraud, low base, cheap labor, reform and opening up, and export-driven. This article is one of a series of articles written by Professor Zhu Tian on the mystery of China’s economic growth. Please look forward to the follow-up articles. 】
China is growing faster than any other country.
China’s economy has maintained a high growth rate for most years from 1978 to now, with the average annual GDP growth rate approaching 10% and the per capita GDP growth exceeding 9%, at least according to the official GDP figures. This rate is much higher than the economic growth rate of developed countries.
According to the data of the World Bank, in the thirty years from 1982 to 2012, the average annual growth rate of per capita GDP in developed countries (referring to high-income OECD countries) was 1.86%, while the average annual growth rate of per capita GDP in China was as high as 9.12%, as shown in Table 1. Unless otherwise specified, the growth rate mentioned in this article refers to the actual growth rate after removing inflation factors. )
China’s economic growth faster than that of developed countries generally doesn’t make people feel great. Most readers will say that this is because of the low starting point of China’s economy or the low base of per capita GDP. Economists call this the catching-up effect.
However, do low-income countries have faster economic growth than high-income countries? That was not the case. As can be seen from Table 1, during the thirty years from 1982 to 2012, the average annual growth rate of per capita GDP in low-income developing countries was only 1.38%, which was lower than that in developed countries. The average annual growth rate of middle-income developing countries is only 3.08%, which is much lower than that of China.
As can also be seen from Figure 1, the economic growth rate of a country in the past 30 years has no obvious relationship with the initial level of economic development (measured by per capita GDP). In fact, apart from Equatorial Guinea, a small African country, which became rich rapidly due to the discovery of a large amount of oil in the mid-1990s, China’s economic growth rate was the fastest in the world in the past 30 years, which was 3 percentage points faster than Bhutan, the second fastest growing country, and twice as fast as India.
In other words, China’s economic growth is far faster than that of developed countries and almost all other developing countries, which is amazing!
China’s economic growth in the past 30 years is unanimously regarded as the result of reform and opening up. Although the reform and opening up can be used to explain why China’s economic growth after 1978 is much faster than that before 1978, it cannot explain why China’s economic growth is much faster than that of other developing countries.
In fact, most developing countries carried out market-oriented economic reforms in the 1980s and 1990s. Table 1 also shows that the overall growth rate of developing countries has indeed accelerated in the past two decades, especially in the last decade, the economic growth rate of both low-income and middle-income developing countries has greatly exceeded that of developed countries. But compared with China, it is still a drop in the bucket. Therefore, the rapid growth of China cannot be explained simply by reform and opening up.
Gross GDP may be underestimated.
Is it possible that China’s economy is growing so fast because the growth rate is greatly overestimated by official data? It seems that China’s GDP statistics are full of water, but the problem is not so simple. It is not the same thing that the total GDP has water and the GDP growth rate has water, and the most critical question is how big the water is.
More than a decade ago, a famous American economic expert in China, Roskey, wrote an article questioning China’s GDP data in 1998, pointing out that the official economic growth rate of that year did not match the changes in power generation, which caused great repercussions. In fact, when Premier Li Keqiang was secretary of the provincial party committee in Liaoning, he didn’t believe in the official GDP, but believed in the figures of power generation, railway freight volume and bank loans. The British "Economist" magazine also created a so-called "Keqiang Index" with these three indicators to reflect the macroeconomic changes in China.
As we all know, until recently, China’s GDP figures were an important indicator for evaluating cadres, and local officials had a great incentive to falsely report GDP. The sum of local GDP of all provinces and cities was greater than the national GDP figures published by the National Bureau of Statistics. Therefore, China’s GDP data is almost certainly inaccurate, at least compared with developed countries with more perfect statistical systems.
Although the GDP data may be artificially exaggerated, on the other hand, China’s GDP may also be underestimated by official statistical methods. For example, Professor Wu Xiaoying, a Japanese hitotsubashi university, pointed out more than ten years ago that due to the insufficient coverage of China’s GDP accounting, GDP may be underestimated by at least 10%. Indeed, the added value of China’s service industry has been underestimated for a long time, so that after the first national economic census in 2004, the National Bureau of Statistics raised the GDP of that year by 16.8%, and more than 90% of the extra part was due to raising the added value of the tertiary industry.
Even so, with the development of modern service industry, the added value of the tertiary industry in China still exists the possibility of underestimation. A 2009 report by Asia Research Department of Morgan Stanley (written by Wang Qing and Zhang Jun) pointed out that the official service industry data is too low because the official data underestimates the actual housing consumption and personal medical expenditure. My research with Professor Zhang Jun of Fudan University also shows that the virtual rent of residents’ own houses, as a part of GDP, is greatly underestimated in the official statistics of China, and the underestimated value may account for 4%-5% of the official GDP.
China’s GDP may be underestimated, but China’s GDP growth rate is probably overestimated. There are two reasons for overestimation. The first is that the inflation rate is underestimated, so the actual growth rate calculated from the nominal GDP growth rate will be overestimated. The second is that the GDP in the early days of reform and opening up may have been underestimated, because there was no concept of GDP in China at that time, and the GDP of the year now announced is the result of later estimation; The underestimation of GDP level more than 30 years ago has exaggerated the growth rate of GDP for more than 30 years.
Independent data show that GDP growth rate may be overestimated by 2-3%.
So how much is China’s GDP growth rate overestimated? According to the estimation of Professor Wu Xiaoying and the late Professor Angus Maddison, the annual GDP growth rate of China from 1978 to 2003 was 7.85%, instead of the official 9.59%. Their research has also influenced the processing of China’s GDP data by Penn World Table, which is widely used in academic circles, and this table has lowered the economic growth rate of China.
The Penn World Table was originally compiled by the International Comparison of Prices Program of the University of Pennsylvania according to the survey results of commodity prices in various countries, and now it is a database for comparing real GDP between countries, which is jointly established by scholars from the University of Pennsylvania, University of California, Davis and university of groningen, the Netherlands. The latest version of the data is PWT 8.0.
Table 2 compares the economic growth rates of China and some countries and regions from 1980 to 2010, which are calculated according to Madison’s data. Table 3 shows the economic growth rates of China and some countries calculated according to the data of Madison and Penn World Table respectively. It can be seen that the GDP growth rate of China per capita given by these two sets of data is 2-3% lower than the official result. If we believe that these two sets of data are more credible than the official data, we can still see that China’s economic growth rate is still among the best in the past three decades, far faster than the world average.
Engel’s coefficient calculates the growth rate
Whether in theory or in practice, official GDP and price index data are likely to be falsified, but residents’ consumption structure data is unlikely to be falsified. Below I will use a new method, that is, through the change of residents’ consumption structure to calculate the speed of China’s economic growth.
Generally speaking, with the improvement of a family’s income level, the proportion of food expenditure to total consumption expenditure will decrease. This ratio is called Engel’s coefficient, and this law is called Engel’s law, which was discovered by German statistician Ernst Engle, 1821-1896) in the 19th century. Engel’s law also applies to the national level, that is to say, the proportion of food expenditure of a country’s residents in the total consumption expenditure will also decrease with the increase of per capita income.
In a study published in 2011, Professor Ancher of the University of Massachusetts in the United States collected Engel coefficients of 207 countries and regions in the world. He divided these countries and regions into 10 groups with the same number of countries from low to high according to the per capita GDP (constant price dollars in 2005) published by the World Bank, and then calculated the Engel of about 20 countries (or regions) in each group. Ancher did not give the per capita GDP range of ten groups in his paper. I added these ten groups of figures in the third column of Table 5, using the per capita GDP data of the World Bank in 1998. The data of 1998 is chosen because the years of Engel coefficient and GDP data used in Ancher are different, and the median year is 1998. Because the constant price of the US dollar is used as the income unit, the choice of which year’s data should not have much influence on the results.
In principle, we can calculate Engel’s coefficient of China from household survey data. In order to facilitate cross-country comparison, the food expenditure of residents in the Engel coefficient defined by Ancher does not include the cost of tobacco, alcohol and dining out; China’s food expenditure includes these three items.
But from the official statistics, we don’t know what these three consumption expenditures were before 1992; After 1992, we only know the consumption data of these three items in the food expenditure of urban residents, but there is no data of rural households. Therefore, we can only calculate the Engel’s coefficient of China’s expenditure excluding alcohol, tobacco and eating out since 1992: 43% in 1992 and 25% in 2012.
Compared with the results in Table 4, the Engel coefficient of urban residents’ consumption in China in 1992 was between the third and fourth income groups, and the corresponding per capita GDP level was about 30% of the country’s, which was about 1040 dollars. In 2012, the coefficient was between the seventh and eighth subgroups, and the corresponding per capita GDP level was about 70% and 30%, which was about 7,400 US dollars.
According to Engel’s coefficient, the per capita GDP of cities and towns in China has increased by about 6 times from 1992 to 2012, with an average annual growth rate of about 10%, which is obviously a very fast speed. Because the income growth of rural residents in China is slower than that of urban residents (about 1 percentage point slower every year), the growth rate of per capita GDP in China is slightly lower than 10%. Of course, because the relationship between Engel’s coefficient and GDP per capita in various countries is not completely constant, there is a one-to-one correspondence. Therefore, the result obtained by using the change of Engel’s coefficient to infer China’s economic growth rate is not very accurate, and it can only be used as a reference when there is no confidence in official figures. Nevertheless, in the past 20 years, China’s Engel coefficient has dropped rapidly, which is equivalent to the level of middle and high income countries. We have reason to believe that China’s economic growth in the past 20 years must be very fast.
Residents’ income is underestimated.
So far, it should be an indisputable fact that China’s GDP has grown rapidly in the past 30 years, but GDP is only an indicator of economic growth, and the growth of ordinary people’s income is an economic indicator that can better reflect people’s living standards. Next, I will use the changes of per capita disposable income (including the net income of rural residents) in household surveys to see the economic growth rate of China. Because the income and expenditure of household survey are not part of the performance appraisal, it is less likely to be artificially exaggerated.
In fact, some studies show that the residents’ income in China may be greatly underestimated, which is more influential than that of scholar Wang Xiaolu. Although the income data of household survey may be underestimated in absolute value, as long as the degree of underestimation does not change much from year to year, the growth rate of household income calculated on this basis will be overestimated or underestimated to a lesser extent. In fact, the income distribution in China is very uneven now, and the proportion of high-income families in household surveys is low, so the underestimation of household income obtained from household surveys may be more serious; More than 30 years ago, the income distribution was relatively equal, and there were almost no high-income people. Therefore, the household sample survey at that time should be more representative than now, and the degree of income underestimation should be lower. Therefore, the real income growth rate is likely to be higher than that calculated from household survey data.
Table 5 shows that from 1982 to 2012, the per capita disposable income in China increased by 50 times in nominal terms, with a compound annual growth rate of 14.01%. However, the consumer price index increased by 5.56% every year during the same period, so the actual growth rate after excluding the price increase factor was 8.45%, slightly lower than the per capita GDP growth rate of 9.12% in the same period.
Of course, the inflation rate in China may be underestimated, so the real income growth may not be as high as 8.45%. In order to avoid using China’s official inflation rate, I first converted RMB income into income in US dollars by using the official exchange rate, and calculated that the per capita disposable income of China in 2012 was US$ 2,640.63, which was 13.63 times that of US$ 193.71 in 1982, so the compound annual growth rate was 9.1%.
That is to say, the income of China residents has increased by 9.1% every year in dollar terms. In the same period, the compound annual growth rate of disposable income of American families was only 3.14%, which was nearly 6% lower than that of China. During this period, the inflation rate of the US dollar was 2.93%, so the annual growth rate of the per capita income of China residents was 6.17%, while that of the United States was 0.21%.
Because China’s RMB exchange rate in 1982 was overvalued, and the RMB exchange rate in 2012 was generally considered undervalued, the growth rate of China residents’ income calculated by the official exchange rate also underestimated the real growth. In addition, according to the RMB exchange rate adjusted by purchasing power parity used by the World Bank, China’s per capita income in 1982 was US$ 200, and in 2012 it reached US$ 4,003, a 20-fold increase, with a compound annual growth rate of 10.5%, and a growth rate of 7.57% after excluding the dollar inflation factor.
Therefore, no matter what data are used, China’s economic growth rate in the past 30 years is second to none in the world. But it should be pointed out that the income growth we are talking about here is an average concept. Because the inequality of income distribution in China has risen rapidly in the past 30 years, from a country with the most equal income distribution to a country with very unequal income distribution, the income growth rate of low-income groups may be far less than the average growth rate.
The rapid growth of China is a mystery.
The growth rate of China’s economy in the past 30 years may not reach 10% per year, and the GDP figures and growth rate in any year are not necessarily reliable. However, from a long-term perspective, the average annual growth rate of China’s economy is still quite fast, faster than almost all countries in the world, and there should be no doubt about this fact.
It is not surprising that China’s economic growth is faster than that of developed countries. After all, the base of China’s economy was originally very low. Although it has grown for so many years, it is still very backward compared with developed countries. But why can China achieve high-speed growth for many years, while most developing countries have slow growth in the same period? This is an important economic mystery that needs to be studied.
There are many superficial explanations about China’s rapid growth. For example, some people say that China’s growth is due to a large number of cheap labor, but all low-income countries have cheap labor, but no country is growing as fast as China.
For another example, the media often see that China’s rapid growth is driven by exports. If exports can drive growth, then developing countries — — Especially small countries — — All countries can achieve rapid growth through exports, and there are not so many backward countries in the world long ago. In fact, as a part of demand, export is not the driving force of long-term economic growth.
The proportion of a country’s exports in the economy depends on many factors and has no direct relationship with the economic growth rate. Although the total export volume of China has ranked first in the world, it does not mean that China’s economy is also the most dependent on exports. The size of China’s economy itself is very large, so it is not surprising that there are many absolute exports. For example, the total export volume of China is only 3.5 times that of South Korea, but the total economic volume of China is 7.3 times that of South Korea, so the dependence of South Korea’s economy on exports is much higher than that of China.
If the dependence of a country’s economy on exports is measured by the proportion of exports to GDP, China’s in 2012 was only 27%, far below the world average. Compared with other countries, China is just an ordinary exporter, and it is not more dependent on exports than other developing countries such as India, Mexico and Turkey. China’s export share is much higher than that of the United States and Japan, but as the two largest developed economies, the export share of the United States and Japan is the lowest in the world. As the domestic added value of China’s total exports is much lower than that of the United States and Japan, if measured by domestic added value, the proportion of China’s export added value in GDP is not much different from that of the United States and Japan.
China is not the first economy in history that has maintained rapid growth for more than 30 years (the per capita GDP has increased by more than 6% annually). Japan, the Four Little Dragons in East Asia and Botswana in Africa have all achieved this. Except Botswana, the top five countries and regions have successively joined the ranks of developed economies. Therefore, China’s growth mystery can also be said to be part of East Asia’s growth mystery.
Will China become a developed country in the foreseeable future, just like Japan and the Four Little Dragons of East Asia? This is a question that needs another article to answer. If you explain the mystery of China’s growth as Chinese’s hard work, Chinese’s cleverness, 5,000-year civilization, reform and opening up and even effective government and national stability, then you should be optimistic about the future of China, because these factors should not change much in the foreseeable future. However, the facts are often much more complicated than these!