The miraculous expansion of the economy – the WTO column

Brussels - Devote Christians believe that, giving the right conditions, water can change into wine. Well, even after drinking loads of wine, I have never achieved that heavenly state of mind. But changing water into wine is nothing compared to what China is going to perform this week. In one blow its economy will grow 300 billion US dollar or 20 percent, on top of the 9 percent actual growth expected for 2005.

In size China will become overnight the fourth-largest economy, passing Italy, France and Britain.

When you have been watching the media more closely, you might have seen other rumors about figures that are up for a drastic change. For example, the official number of urban unemployed is expected to double. Political sensitive figures, like those on GDP and the urban unemployed, have mostly matched the political whishes rather than reality.

While we know that reality in China is often that what the government makes out of it, you might wonder why this administrative change is happening – since it might at best be an acknowledgment of an already longer existing truth.

Last year China conducted a massive economic census, focusing on economic data. A nationwide census, conducted years ago, has been dismissed by both domestic and foreign experts as an outdated tool that generated only useless data as many people skipped the census or gave information that would not bring them as an individual into problems. The government had promised not to use any information against individual, but like in most countries, people would rather be sure than sorry.

The next question is whether the upcoming revamp is giving a fair picture of the state of China’s economy. I’m not that sure. The increase with 29 percent of course makes it more in line with the truth, but much of China’s economic power is still hidden from the outside world.

My estimation, looking at the economic behavior of my friends and companies I know, I would estimate that at least 50 percent of deals, income and activities are not covered in the official economy. That figure would vary, according to whom you would be talking to. Some of the China veterans I know would estimate that 90 percent of the economic activities takes place outside the official economy.

How much of the economy really has been covered depends on the quality of the economic census that has been conducted at the end of 2004.

Should the consumer industry now get excited since the per capita income in China will go through the roof? I would not expect too much change, since it is only an administrative correction that might make your business plan looks more hopeful. Reality will be as it is: getting a part of that GDP into your pocket will be a major challenge.

Fons Tuinstra

Update: The GDP went up on Tuesday a bit less than expected: 16.8 percent, according to AP. That does mean that for the time being China's economy only passed that of Italy and becomes the 6th largest economy in the world, at least according to the official figures.

On China's economy