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Controversy over how fast China is really growing

Tuesday, September 4th 2007 - 21:00 UTC
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While many people believe China will effectively quite soon become the world's second economy and catch up with United States sometime this century, MIT Professor Lester Thurow for a range of reasons argues that China's century will not be this one, but the next.

In an article published in The New York Times, Professor Thurow points to the Chinese government exaggeration in reporting on the economy and gives three reasons why the official figures over-state China's growth rate. First, he says that the countryside is not growing according to official statistics. Economic growth is confined to the cities. Second, the statistics from mainland China do not tally with those from the semi-autonomous territory of Hong Kong. Finally, the relatively slow growth of electricity consumption seems to indicate China's growth is not as fast as claimed. The general pattern is for electricity use to grow faster than GDP. Thurow argues that if the Chinese economy is growing at 10% or more annually and 70% of the economy in rural areas was not growing, then (according to his math), cities would be growing at 33% a year. Thurow dismisses this as inflated. Next, he matches economic growth rates to electricity consumption, and he finds provinces where GDP is outpacing energy use. And after a little more math, he decides that the Chinese economy is growing at 4.5 to 6% annually. However Mark Williams an economist at the consultancy Capital Economics has written a rebuttal to Thurow's claims. He says Thurow is simply wrong about the statistics for rural growth. According to the official statistics the rural economy has grown by about 5% year-on-year over the past two years. Williams concedes that Thurow has a point in relation to the Hong Kong statistics. However, he argues strongly against Thurow on electricity. Williams points out that China has switched from an inefficient centrally planned economy to more efficient manufacturing and services. As a result it should not be a surprise that it can harness electricity relatively productively. "The debate is an important one to have as China's rapid growth is one of the most important features of the contemporary global economy", says Williams, since not only are 1.3 billion Chinese benefiting from greater prosperity but the world economy too has benefited. "Contrary to the conventional wisdom it is Asian production, rather than American consumption, that has played a key role in driving the world economy in recent years". There is a lot of room to debate China's actual growth rate. Some experts argue, with some justification, that it could be higher than the official figures suggest. It certainly looks possible that the volatility of growth could be smoothed for political reasons.

Categories: Economy, International.

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