Wednesday, January 04, 2006

China to overtake Britain after Beijing underestimates growth

Larry ElliottWednesday December 14, 2005The Guardian
China will overtake Britain as the world's fourth-biggest economy this year after the government in Beijing found it had underestimated output of the fastest-growing country in the world by as much as 20%.
China's first national census will show that under-recording of the service sector meant that China was just behind Britain in the global league table last year.
Economists said another year of rapid growth in China, a weak UK performance and changes in exchange rates left only the United States, Japan and Germany ahead of China in 2005. Jim O'Neill, head of global economics at Goldman Sachs, said he had expected China to overtake Britain by 2007 but that Beijing's revisions to the data had brought the date forward.
(image placeholder)(image placeholder)(image placeholder)oldman Sachs believes Brazil, Russia, India and China will expand rapidly in the next 30 to 50 years, overtaking all the richest countries bar the US. Mr O'Neill said: "If these figures are confirmed then it will mean that China will become the fourth-largest economy in the world."
The revisions also suggested that growth has been better balanced than some analysts feared, he said. Concerns were raised about an investment bubble but the new data suggested stronger growth of private services. "Speculation about an investment bubble that will have to crash is misplaced," he said.
China's GDP had been put at $1.65 trillion in 2004. The census found an extra $300bn of output - in sectors such as law, financial services, consultancy and advertising - and will lead to revisions in the growth rate over the past 10 years.
The Bank of England said the sterling-dollar exchange rate averaged $1.83 in 2004, making China's GDP worth £1.065 trillion. Last week's pre-budget report put British GDP in 2004 at £1.11 trillion. In 2005, China is estimated to have grown by 9% - five times as fast as Gordon Brown's 1.75% forecast for Britain. Sterling's decline against the dollar will also have the effect of inflating the value of China's GDP.
Julian Jessop, of Capital Economics, said: "These numbers show that the UK will clearly be overtaken by China in 2005. ... This increases the case for China to join the G7, perhaps in place of one of the smaller countries like Canada."
Beijing assumed that services made up almost 30% of China's GDP. But last year it launched a census to give a fuller picture of an economy that has grown by 8.7% on average for the past 10 years. The last big correction of data, in the mid-1990s, led to an upward revision of growth in the 15 years since the market reforms in 1978.
Most western economies, including Britain's, struggle to measure service-sector output but economists said China's statistical techniques up until now had been especially crude, leading to a systematic understatement of its contribution.
Frithjof Schmidt, a German Green MEP at the World Trade Organisation talks in Hong Kong, said the news would fan protectionism in the west. "China's success has made even strong industrial nations nervous ... Those who advocate free trade in Europe are beginning to rethink."

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