Walking In Wuhan

I started reading a book called Microtrends, which examines how statistics and smaller groups can highlight new and developing trends. It also deals with how statistics often go against accepted norms and information. As a journalist, I've always been intrigued by how numbers and statistics can be focal points of stories. Working form the other side, I've also seen how tweaking a number's presentation can drastically affect how something is perceived. For example, which is more impressive to you – a 21 percent increase or an amount that's its eight times its previous level?

I found this in today's New York Times about China's economy. Turns out the Chinese economy is not growing as quickly as once thought, and might actually be overvalued. Depending upon how you measure economic growth, China has either 100 or 300 million people living below the poverty line – quite the little nuance.

From the New York Times:

China Shrinks
By EDUARDO PORTER

Few people noticed, but China got smaller the other day. According to new estimates, the colossal Chinese economy that has been making marketers salivate and giving others an inferiority complex may be roughly 40 percent smaller than previously thought: worth $6 trillion rather than $10 trillion. That means it lost a chunk roughly the size of Japan’s output.

What happened was a large statistical glitch. When comparing the size of economies, economists mostly avoid using the standard currency exchange rates seen in bank windows. These fluctuate too much, driven by housing woes, trade deficits or presidential popularity. Economists prefer to use what is known as “purchasing power parity” — or P.P.P. — a rate that adjusts for price differences between countries.

Take a 40 yuan serving of noodles at an eatery in Beijing. If the same dish cost $4 at a comparable restaurant in New York, the noodle P.P.P. would be 10 yuan to the dollar. Calculated using a large basket of goods and services, this ratio allows for a more consistent comparison of economies.

The problem is that the World Bank’s measure of China’s rate, everybody’s benchmark, had been based on a 1980s survey of Chinese prices. This year, the World Bank did its own survey to update the measure. While the bank has not published it yet, Albert Keidel of the Carnegie Endowment for International Peace extrapolated the figure from another set of exchange rates published by the Asian Development Bank.

It turns out that things in China are more expensive. It’s as though we discovered that the real price of the noodles in Beijing was 50 yuan, yielding a P.P.P. of 12.5 yuan to the dollar rather than 10. That means the Chinese are relatively poorer and China’s economy is smaller than everybody thought.

This is not a mere technicality. Suddenly the number of Chinese who live below the World Bank’s poverty line of a dollar a day jumped from about 100 million to 300 million, roughly the size of the United States population. And if you thought China’s energy consumption was dismally inefficient, consider that it still uses the same amount of energy to produce 40 percent less stuff. The reassessment does not just involve China. India is also likely to be downsized. And, by the way, global growth has very likely been slower than we thought.

I don’t think China’s leaders have said anything about the recalibration. But they should be pretty pleased. China has been known to enjoy throwing its weight around, but being big also exacts a cost. If a country is that wealthy, others can demand that it start pulling its weight and play more by the international rules. If China is less wealthy, and less a rival, maybe some members of the United States Congress will not press it so hard to revalue its exchange rate. Using the earlier estimate, China’s economy was due to surpass the $13 trillion American economy in about five years. At $6 trillion, it may look somewhat less scary.