NEW DELHI — Has China really achieved double-digit growth rates in the past two decades? And is India really lagging behind? Close scrutiny reveals that India’s growth rate may actually have been higher.
China is said to have moved to a double-digit trajectory beginning in the early 1980s. The size of the economy at that time as well as at present are both known from World Development Reports published regularly by the World Bank. A simple calculation can tell us the average growth rate in the period. This growth rate is much lower than the double-digit levels claimed.
China’s gross domestic product was $264 billion in 1981 according to WDR 1983. By 1999, it had increased to $991 billion, according to the WDR 2000/01 — the latest report available. The compound annual growth rate works out to 7.6 percent. The claim of an average 10.1 percent growth rate in the ’80s and 10.7 percent in the ’90s made in these reports is, therefore, simply incorrect.
India’s figures from the same reports, on the other hand, are consistent. Corresponding figures for India’s GDP are $142 billion in 1981 and $459 billion in 1999. This works out to an average annual growth rate of 6.7 percent. India has claimed a growth rate of 5.8 percent for the 1980s and 6.1 percent for the 1990s. The discrepancy is nominal. More importantly, India has claimed lower rates of growth than those implied by the data of the two terminal years.
A similar anomaly appears in China’s spectacular export performance. The data simply do not match. According to WDR 2000/01, China earned foreign exchange of $208 billion from exports, $42 billion from foreign investment and $4 billion from remittances for a total of $254 billion. Of this, $165 billion was used for imports and $5 billion for accretion of foreign-exchange reserves — a total of $170 billion. There is no explanation as to what happened to the remaining $84 billion of foreign exchange earned. It is thus likely that the figures for exports and possibly foreign investment may have been fudged. Actual exports may have been only $124 billion vs. imports of $165 billion. If that’s the case, then the very buoyancy of China’s exports is brought into question.
In contrast, India’s data on balance of payments fits. Total receipts from exports, foreign investment and remittances are reported to be $63 billion vs. outflows of $60 billion, mainly for imports. This shows that the basic method adopted by the author is correct. The problem lies more with the data given by the Chinese government.
There are reasons to believe that even the 7.6 percent growth rate figured for China on the basis of the two terminal years’ data may be grossly overstated since it rests on the GDP figure for 1999.
Professor Thomas Rawski of the University of Pittsburgh has compared China’s GDP growth rates with its energy consumption based on Government of China data. He finds that energy consumption has not kept pace with the GDP growth rate. In his words: “The yearbook figures imply that real GDP grew by 24.7 percent between 1997 and 2000. During the same three years, energy consumption dropped by 12.8 percent.
The implied reduction of 30 percent in unit energy consumption over three years seems implausible, despite the rapid growth of computer manufacturing and other activities with low unit-energy consumption. Rapid growth of energy efficiency is not a hallmark of China’s economy: In 1997-98, for example, the efficiency of energy conversion in producing thermal electricity, coke and refined oil products all declined, and the ‘total efficiency of energy conversion’ was no better than the average for 1983/84.”
He further compares the data on consumption. He finds that for the period 1997-2001, rural per capita income was reported to have marginally declined by 0.4 percent while rural consumption was reported to have increased by 31.6 percent. He writes that “the difference is far too large to attribute to population growth, which is approximately 1 percent per year.”
Rawski estimates that China’s actual rate of growth for this four-year period was between 0.4 percent and 11.4 percent, or about 1.5 percent a year. Even the 7.6 percent growth rate mentioned above is, therefore, suspect.
Newsweek columnist Melinda Liu writes that “since 1998 nearly all Chinese provincial authorities have overreported growth rates, leading to a situation in which the sum of the parts add up to more than the whole. In statistics unveiled before the Chinese Parliament, every province but Yunnan reported GDP growth rates that exceeded the national average of 7.3 percent.”
These “low” growth rates are indeed surprising in view of the relatively high rates of savings. Compare India and China. India’s rate of savings in 1999 was 20 percent. It received foreign investment, or foreign savings, worth 1.3 percent of GDP. It achieved a growth rate of 6.9 percent during the year with a total savings rate of 21.3 percent. China’s corresponding figures for the same year are 4.3 percent and 42 percent. Although the total savings rate of China was double that of India, the growth rate for the year is reported to be 7.2 percent — a paltry 0.3 percent more than that of India. Certainly China should have done better with double the rate of savings.
It should be remembered that the World Bank routinely publishes data provided by governments. The data do not represent the World Bank’s own assessments; therefore, it is quite possible that China has claimed high growth rates to create a hype necessary for it to attract large amounts of foreign investment.
What needs to be explained is the huge improvement in China’s infrastructure in the last two decades. It may be that these cities represent oases in the desert. India’s own history is replete with massive royal grandeur juxtaposed to pervasive poverty. A similar spectacle may be haunting China. It is possible that the condition of the average Chinese may not have improved. If all of the nation’s wealth has been put into building grand cities, it should not be used as an indicator of widespread and stable growth.
In the late 1950s, it was claimed that huge gains in agricultural productivity had taken place due to collectivization of agricultural lands. Then, in the early 1970s, this approach was reversed. Once again, huge improvements in agricultural productivity were claimed — due to privatization!
It seems that the economic performance of China may be more hype than reality. The world should take a closer look at the Indian model instead.
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