China Sharply Revises GDP Figure

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China Sharply Revises GDP Figure

By JAMES T. AREDDY
Staff Reporter of THE WALL STREET JOURNAL
December 20, 2005; Page A12

SHANGHAI – The world's fastest growing large economy, China, has just gotten nearly 17% bigger. Beijing on Tuesday said it has recalculated the size of its economic output in 2004 to better reflect the activity of consumers, as opposed to manufacturers.

The impact is that China's gross domestic product was 16.8% larger in 2004 than previously known. China, therefore, ranked as the sixth largest global economy last year instead of seventh, moving ahead of Italy but holding behind France.

The new figure for 2004 GDP is 15.988 trillion yuan, or about $1.931 trillion, based on the exchange rate then, compared with 13.688 trillion yuan as calculated under the previous method, according to the National Bureau of Statistics.

The main difference is that China relied on consumer activity and services for 40.7% of national economic output last year, compared with just 31.9% as previously reported. The change is the result of the statistics department's first economic census.

A bigger services economy means China's economy is healthier than previously known since it relies less on manufacturing and exports. It is also richer per capita. Plus, the bigger size of the economy suggests China is more efficient in allocating investment, which based on the old statistics had reached worrying levels.

Officials were quick to play down the impact of the new figures, expressing a keen awareness of how China's fast economic rise is creating political waves overseas and pushing up global commodity prices. "It's only an error in the total number [for GDP] … there is no fundamental change of the total picture," said Li Deshui, director of the statistics bureau, during a televised press conference. "Problems and complications are still there," Mr. Li said.

He noted that China continues to struggle to boost consumer demand and has "a long way to catch up" to developed economies like the U.S. where the service sector is 75% of the GDP. Even based on the new numbers, the U.S. economy remained about six times larger than China's last year. And Mr. Li noted that global exchange-rate changes have made as much difference to rankings of big economies in recent years as China's revision on Tuesday.

In the future, the statistics bureau said it plans to adopt the new methodology for measuring the economy. But Mr. Li sidestepped a question about how much impact the new reading of China's economy might have on the actual rate of the country's economic growth, which rose 9.5% last year. China has remained the fastest-growing major economy in the first three quarters of this year, as it expanded at an average 9.4%.

Armed with the new methodology, the statistics bureau intends to revise data on GDP going back 10 years but Mr. Li didn't say whether he expects higher or lower growth rates for the period.

Write to James T. Areddy at james.areddy@wsj.com