Bean counters in disarray - the WTO column

The storm has been brewing for some time, after first the Asian Development Bank (ADB) and most recently the World Bank had to admit that China’s economy was a whoppy 40 percent smaller than earlier estimated. The same goes for India, but because of the relative size, the news on China had a larger effect.
It was the latest twist in China’s difficult relations with – eh – facts and figures that has been a regular feature in the country’s development. Rather an observer of China’s micro economy than an analyst of its macro economy, I was often impressed by the talents of macro-economists to makes sense out of the chaotic development of a country where almost every person, company, government department and other organizations to hide the reality for the rest of China of a wide array of reasons.
Of course, there were always some doubts about the trustworthiness of those figures, but the pressure by policy makers, media and also the general audience to come up with ways to compare China and its provinces with the rest of the world was just to big to be too reserved about those factlets.
That was something was very rotten with the way for example the GDP was constructed was already clear for years: China’s provinces together had an average GDP that was much higher than the national one. Since the GDP was an instrument for promoting local officials, the pressure to come up with cooked figures.
When China’s decided a few years ago to simply up its official GDP figures with 17 percent, the economists worldwide were at least for a few days in a state of shock, although it hardly came as a surprise. Interestingly, denouncing the GDP in such a major way was not enough to dump the figure all together and especially the media kept on quoting GDP-figures as if there was a close relationship with reality.
Fortunately, there was still the Purchasing Power Parity (PPP), this much more balanced way of assessing a country’s economy. Well, until first the ADB and then the World Bank had to admit that past policies had been based on totally wrong figures.
One of the practical consequences: the number of Chinese living in poverty according to the World Bank standard, earning less than one US dollar per day, increased from 100 million to 300 million. Very few of China’s new poor must have noticed the difference, but World Bank president Zoelick was fast to say that this little revelation would have no effect on the current policies.
Most of the world kept on turning, just like what happened after the Chinese government revised its GDP figures. Most users of the figures simply ignored they had a limited relation to reality. You do not have to be a clairvoyant to predict that the same is most likely going to happen with the latest denouncements of the PPP-assessments. Of course there will be corrections, efforts to bring them more in line with reality. But telling the emperor he is not wearing any clothes has never been a very popular activity.
Some of my friends, who make a living in explaining China by figures will have a tough 2008, as they have to review again all their reports, just like they did after the revision of the GDP-figure. But a life without those relative certainties would be unthinkable.

Fons Tuinstra