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Hi,
I have a query/problem about China's
stats and with all the stats that come out during Bull/"expansionary" phases of
any economy. This was one of the phenomenons explained by John Kenneth Galbraith
using the US as an example.
It goes as follows. If I give you a loan
/invest which you dont intend to repay/service at all but I dont know
yet and you consume those funds (loot it, spend it on foolish schemes
a la dot coms or whatever the prevailing madness is), the GDP calculation
loyally records the consumption arising from the spend/loot but not the
fact that I am going to lose all my money. If both get recorded the
GDP of the country wouldnt budge an inch as it would be tantamount to a transfer
of spending power from one person to another. In th example given above, my
loss is only recorded in subsequent periods, if at all ( I am not too convinced
that GDP measures the capital loss to investors at a later date for example for
example do current US GDP calculation is measuring the
invesment losses of households ! ). This loss which goes
unrecorded in the economy was called the "bezzle" by Galbraith. "Bezzle" is
usually at its peak during great expansionary runs when people who have put
money in the hottest industries and new era ventures of that era and
consider those as "investments" when actually a few years it turns
out that money was consumed by the promoters/firms in one way or another
and their investments were more in the nature of "transfers" ( as US citizens
are now belatedly discovering for themselves). Thus the bezzle is finally
revealed and the loss booked at least in the Investors books or mind
! This is true of a country with proper accounting systems like
US.
In the case of China, they are showing thw world a
8% or whatever GDP growth. Such a GDP growth, implies the big firms
such as SOEs are making good profits ( profits are one component of GDP
calculations) despite selling their stuff at throw away prices. If that were so,
can some explain how there is a 45% NPA in their banking system. In a normal
world, companies that make profits should be able to repay their debts and hence
there should be no NPAs in the banking systems. Intuitively it appears therefore
that China too has has a huge "bezzle" which is now revealing
itself! In simple terms it means the SOEs and/or Banks books were
cooked so that their accounts did not show this "bezzle". Either the
SOEs didn't show all these debts on their books or they didnt recongize interest
on their books or the banks dont show loan loss provisions on their
books.
Which then begs the question " What was
the China's GDP growth rate of the past ? " To run some numbers if we
decided that these 45% NPAs were built up in last 10 years that's a loss
of almost 4-5% of the Banking systems every year. if we
then take the $ amount of this 4-5% loss of Banking system every year and
deduct it from from the GDP growth and retate the past GDP wont
the numbers look suitably abbreviated ?
Koushik
> > > - > > > Leader Page Articles > > > > > > > > > The economy: is China ahead? > > > > > > > > > > > > By Subramanian Swamy > > > > > > > > > > > > THERE IS no dearth of articles and opinions in the Indian media about > > > how well China is doing compared to India, and how much ahead the > > > Chinese economy is of India's. From effusive business delegations to > > > pontificating visiting Nobel Laureates, India has been lectured on how > > > to copy China for our own good. > > > > > > For the suffering Indians, further there is no accountability for such > > > opinion and advice. When after three decades of planning, it appeared in > > > retrospect that by not adopting the Chinese way, India was better off, > > > there was no way we could bring the intellectual freebooters to book and > > > ask for an explanation. For example, for years in the 1960s and 1970s, > > > Amartya Sen lectured to Indians during his short annual winter migration > > > to India on how well and how much better the Chinese authoritarian > > > socialist system was doing compared to India. There was no poverty, > > > inflation or unemployment in China, he informed us. China was growing at > > > 8 per cent per year while we were stuck with the Hindu rate of 3.5 per > > > cent. He pontificated that it was because we were not socialist the way > > > China was. When as a professor I challenged this view with statistics > > > and calculated that China was not doing better than India in every > > > respect, and that there was poverty, shortages and unemployment there! > > > too, the Left intellectual establishment was enraged. It became even > > > more horrified that I had held India's failure to adopt the market > > > system as the cause for us not overtaking the Chinese in economic > > > performance. > > > > > > Then, in 1980, came the Deng Xiaoping revolution in China. All that I > > > had estimated rigorously was confirmed by the new official statistics of > > > China. India and China over the three decades 1950-80 had indeed grown > > > at the same rate of 3.5 per cent, and their per capita incomes were in > > > 1980 about the same! There had been a terrible food shortage in China > > > during 1959-61 due to commune formation, and about 30 million people > > > died in a famine. No such thing had happened in India. We had democracy, > > > and China did not. China had labour camps to which intellectuals with > > > wrong ideas were sent to dig ditches. India did not. But Prof. Sen and > > > his likes were unfazed. Soon enough they began telling us again how well > > > and better China was doing because of Deng's reforms. Indian Ministers > > > came back from short tours to China all too easily impressed. Hearing > > > and reading again all this cacophony about China, I decided to do a > > > follow-up study, and look again at the statistics since 1980. The que! > > > stions that I pose here are: has China since 1980 got ahead of India > > > economically? If so, why and how much? And can India close that gap in > > > the foreseeable future? > > > > > > The answer to the first question is a qualified or conditional yes. > > > China has been growing faster than India, but not as fast as those who > > > deprecate India say. Chinese statistics need reworking since their > > > compliance with the U.N. Statistical System of dos and don'ts is partial > > > while the Indian compliance is near total. Thus, for example, we do not > > > include potatoes in foodgrains while the Chinese do. China calls paddy > > > rice while we do so only after removing the husk. This makes for a 25 > > > per cent difference! > > > > > > After bringing Chinese and Indian data in conformity, it turns out that > > > the Chinese GDP growth rate since 1980 is 7.4 per cent a year, and not > > > 10 per cent a year as the CII crunches out or the intellectual migratory > > > birds tell us at the bashes at the India International Centre, New > > > Delhi. India's is 6 per cent which is lower than China's. If we break up > > > the two decades since 1980 into two periods of a decade each, we find > > > that the China's growth rate has decelerated in the 1990s to become > > > equal to India's accelerating growth of more than 6 per cent a year. > > > During the first two years of the 21st century, the Chinese and Indian > > > growth rates are the same, but for different reasons. China's > > > manufacturing sector has boomed while in India the service sector has > > > been the star performer. Which is a better way to achieve high growth > > > rates in the future is too big a topic to be dealt with here, but it > > > suffices to say that for any country the manufacturing and service > > > sectors have to g! > > > row in harmony to be sustainable. Thus, there is this untenable > > > imbalance that ought to be corrected in both countries by new reforms > > > which both countries are hesitating to implement. > > > > > > The higher growth rate of two decades since 1980 in China is ascribed to > > > higher investment as a result of high domestic savings and a large > > > foreign investment. The rate of investment in China is about 40 per cent > > > of GNP, which is perhaps the highest in the world. In India it is about > > > 24 per cent. Two points emerge from these numbers: first, despite a much > > > higher rate of investment in China the growth rate has evened out with > > > India's in the 1990s. This implies that China is using resources more > > > inefficiently than India! Yet, we get lectures on how efficient China > > > is. Second, if India manages to raise its rate of investment, either by > > > increasing its saving rate or by getting more foreign investment, we can > > > even at the present levels of efficiency grow faster than China. In > > > fact, by raising the rate of investment to 30 per cent of GDP and > > > becoming a little more efficient, we can grow at 10 per cent a year > > > against China's 6 per cent (on corrected data of course). Of course, > > > Chin! > > > a could become more efficient and raise its growth rate too. But that > > > would require major financial reforms which would threaten the hold of > > > the Communist Party on the financial levers of the economy. Banks and > > > financial institutions in China are much more milking cows than in > > > India. In fact, China's public sector enterprises will collapse in > > > bankruptcies if they are not allowed to default on bank loans (China's > > > NPAs are 45 per cent compared to India's 12 per cent). > > > > > > At present, India's potential for growth is thus better because there is > > > scope for raising our rate of investment, while Chinese rates are > > > already so high that it cannot be raised much further without an > > > upheaval. If we focus on economic development then we can overtake China > > > in another decade. > > > > > > Much has been written about China's superior export performance and the > > > huge foreign exchange reserves. China's exports of more than $200 > > > billion rose from $20 billion 20 years ago, while Indian exports are > > > about $33 billion, up from $15 billion. China's reserves are $170 > > > billion compared to India's $62 billion. China has had a positive > > > balance of payments current account, while India's has been negative. > > > These facts almost everyone knows, but what most do not know is how > > > fragile is China's foreign trade system. China's exports and imports > > > when divided into goods and services that emanate from or get consumed > > > in the domestic sector, and those which are imported and then > > > re-exported, reveal this fragility. China has a big deficit in the > > > former and huge surplus in the latter. The latter is due to re-location > > > and outsourcing of production of goods that Taiwan, South Korea, Hong > > > Kong etc., used to make and export directly to the U.S. and Europe but > > > now were getting it processed ! > > > in China because its labour is cheaper. This cannot be done for long > > > since China's labour is getting expensive and there is a limit to such > > > outsourcing for physical goods. Hence within the coming decade when this > > > levels off and the WTO forces the economy to open up, China will become > > > a balance of payments deficit country, and much more so than India then. > > > > > > Hence in the new year, let us realise not only our weaknesses but our > > > innate strengths as well. India is a veteran survivor civilisation that > > > has repeatedly disproved all Cassandras. If we can get our act together > > > on the economic front, then we can indeed be the global no.1 as indeed > > > we were three centuries ago. If on the other hand we continue to wallow > > > in religious polarisation, then we shall slide back to ignominy as we > > > did two centuries ago. That choice is once again staring us in the face > > > in the 21st century. > > > > > > > > > > > > > > > > > > > > > > > > > > > Copyright: 1995 - 2002 The Hindu > > > > > > Republication or redissemination of the contents of this screen are > > > expressly > > > prohibited without the consent of The Hindu > > > > > >__________________________________________________ > >Do you Yahoo!? > >Yahoo! Mail Plus - Powerful. Affordable. Sign up now. > >http://mailplus.yahoo.com > > > _________________________________________________________________ > Tired of spam? Get advanced junk mail protection with MSN 8. > http://join.msn.com/?page=features/junkmail > > > |
