China GDP data corrupt [working paper]

From: raylopez99 (raylopez99_at_yahoo.com)
Date: 01/20/05 

Date: 20 Jan 2005 01:41:10 -0800

soc.culture.china, sci.econ
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Thesis / Abstract:

China GDP data widely quoted is distorted, in particular the GDP and
GDP per capita (Purchasing Power Parity). By measuring energy
consumed, using a suitable correction variable for the energy
inefficiency of communist economies, and triangulating data with
countries of proven economic data reliability, the true GDP and GDP per
capital for China can be computed as between $2.25 trillion < PPP
(China) < $3.03 trillion, which is less than the often quoted figure of
$6.449 trillion (2004 est.) by between 33% to 50%.

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Analysis:

0. This note arouse from an idea several years ago on China
productivity by economist Paul Krugman, and from a suggestion that data
in China is suspect (in Gordon G. Chang's "The Coming Collapse of
China").

1. I triangulated data as shown below, using the following assumptions,
and found that there were discrepancies that only can be reconciled by
assuming China's GDP is less than the often stated figure of $6.449
trillion (from the CIA Book of Facts website, which admitedly is often
wrong, but widely quoted). My suspicion, which this short note cannot
address, is that the often stated data for China is extrapolated from
the "urban" Chinese, in particular those in large cities, and
multiplied by the total number of Chinese (including those in rural
areas), which are living "hand to mouth" (subsistence level).

2. Energy consumed cannot be as easily distorted as economic output.
So use the below data from the Energy Information Administration
(www.eia.doe.gov)

3. Modern "Western" states include: France, Germany, Italy, UK,
Japan and the US

4. Communist countries are well known to waste energy as input for
every unit of output. For example, and considered representative, is
the case of post-communist Belarus, which by its own admission is today
using only 43% of the energy (in coal) it used to use in Soviet times
(for the same population). As post-communist Belarus is perhaps 33% to
50% as efficient as modern "Western" states, including Europe, the
US, and Japan, the implication is that China uses up to 7.14 times
(inverse of 0.14) the energy that a modern "Western" state uses,
for a given unit of economic output (see figures below). But, just to
be charitable and conservative in favor of the official Chinese
figures, it is assumed that modern China is only 50% as efficient per
unit of output as modern (2 times energy input needed as for a modern
"Western" state). This is very conservative in favor of China.

5. Using the figures below for population (assumed accurate) and GDP,
which are referenced, it can be seen that from a Purchasing Power
Parity, GDP for China is between $2.25 trillion < PPP (China) < $3.03
trillion. The reason there is a range is because the US is not as
energy efficient as Euro-land and Japan (this is a well known
phenomena, as the US likes to waste energy with large cars, and the
population density is not as conducive to mass transportation).

6. The implication is that China is 'equivalent' to 20.4% of US GDP
(PPP), or equal to a population of 60 million Americans, at worse, or,
at best, equal to 121 million European-Japanese, or 3.03 trillion ($).

7. Another statistic that is telling: the vast majority (some say 80%)
of the population of China is still "rural". Multiplying 0.20 *
1299 mil = 260 million "urban" Chinese. If you don't factor any
"inefficiency" energy deflator, x", that is assume x = 1, you get
242.3 million Chinese from the energy figures below. This is
equivalent to a 19% urban population. It is reasonable to assume that
most of the data generated by government organs in China is from the
"urban" sector, consistent with the anecdotal evidence that the
Chinese rural sector is not thriving.

8. The author of this note lives in CA, is a mutual fund investor in
China, is not an economist, and believes in the future of China.
Serious replies welcome.

In conclusion: the data for GDP for China that states GDP is $6.449
trillion is false. Their true GDP is probably at least 33% to 50% of
this figure. Even this range is probably high, since energy efficiency
in communist countries is typically much less than 33% to 50% of their
"Western" counterparts (Europeans, Japanese and Americans).

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RAW DATA:
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Energy Consumption per region (1992-2001) Source: Energy Info. Admin,
Intl' Energy Database.

Country / Population / Energy Consumption (Quadrillion BTU) / Ratio
Million people per QBTU

France / 60.4 mil/ 10.52 QBTU/ 5.74
Germany / 82.4 / 14.4 / 5.72
Italy / 58.1 / 8.11 / 7.2
UK / 60.3 / 9.8 / 6.12
JP / 127.3 / 21/92 / 5.8

Average of above: 6.109 Million People per QBTU (inverse = 0.1637
QBTU/Mil)

US / 293/ 96.32 / 3.04
China / 1299 / 39.67 / 32.7

China: 39.67 QBTU * 6.109 Mil people / QBTU = 242.3 million people
(not deflated)
Or, for US figures: 39.67 QBTU * 3.04 Mil/QBTU = 120.6 million people
(not deflated)

* Communist "inefficiency" energy deflator, "x", of x = between
33% to 43%, or, at best (factor of safety), say 50%

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* For the production of the unit of GDP Belarus uses 4-5 times more
fuel and energy resources than western countries. The country consumes
annually more than 30 tons of conditional fuel (coal equivalent), i.e.
approximately about 3 tons of conditional fuel per one citizen (versus
7 thousand tons in the Soviet times)(3/7 = 43%) while in the rest of
the world this indicator constitutes 1 ton. (1/3=33%) For example, last
year per capita consumption of gas and electricity was 1,850 cubic
meters and 3,400 kWh [2586 kWh per person], accordingly. This is nearly
twice an average European level. (0.5). [So x = deflator is as low as
(.43)(.33) = 0.14, or (.43)(.5) = 0.215, or as high as .33 or .43 (the
latter two numbers assuming modern post-communist Belarus today is as
energy efficient as the "West" is today, which is not realistic,
but forms an upper bound. By choosing x = 0.50, the factor of safety
is even greater (more conservative in favor of China), by a factor of
between 0.5/0.14 = 3.6 times, or 0.5/0.215 = 2.33 times.
Source: www.nationmaster.com
China electricity = 1019 kWh per person
Japan = 7579 kWh per person
US = 12406 kWh per person
Russia = 5348 kWh per person
This data not directly relevant, except to show that China is unusually
low in electricity per capita, approaching that of African states,
which is not consistent with the thesis of the world's second largest
economy. One can argue this is because of the large population, but,
if so, this is consistent with the assumption is that most of the
Chinese in the 'rural' parts are probably living at a
'subsistance' level, see the note above about "urban" versus
"rural" Chinese.
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