GDP

Last week China reported its first quarter GDP data.  Consumer inflation for the quarter was 8%, which is too high, but we already knew that.  The main news was that GDP growth came in at 10.6% year-on-year.  This is down from last year’s 11.7% rate, but higher than most forecasts for 2008 (including the Bank’s revised 9.4% forecast).  There was a healthy decline in the trade surplus for the quarter of about $5 billion or 10%.  The trade adjustment took a good form in that exports grew at a respectable 21% rate while imports surged 29%.  Most of this increase in exports was to the European Union, while growth of exports to the U.S. moderated to a 5% rate.  All of this looks to be in the direction of the rebalancing that China is trying to achieve.

In the Bank's recent China macro quarterly we included an appendix on the implications of the new PPP estimates for poverty analysis in China (PPP or Purchasing Power Parity).  Perhaps because it was an appendix it did not receive much attention. 

The new PPPs reveal that prices are about 40 percent higher than had been assumed under the old PPP, which was an academic guestimate.  Some researchers immediately applied the new PPP conversion factor for GDP to household data and came up with hugely higher estimates of the $1 per day poverty rate for China.  However, the World Bank does not use the GDP conversion factor in measuring poverty.  The research department of the bank will produce a conversion factor for poverty analysis that takes account of two important things:

(1) the basket actually consumed by the poor is different from the GDP basket; and

(2) the poor almost exclusively live in rural areas where prices are lower. 

The year 2007 was an important milestone in modern economic history.  While the U.S. grew well, China contributed more to global GDP growth than the U.S. did.  That pattern is likely to continue for the foreseeable future.  Roughly speaking, the U.S. economy is about four times the size of China’s.  If the U.S. grows at 2% -- which is solid for an advanced economy – and China continues to grow at 10+%, then China will be adding more to global GDP each year than any other country.  The same can be said for global trade: China’s imports have risen 28% in the past year, so that it is an increasingly important source of demand for other countries. 

The growing importance of China in the global economy is the main reason that we have launched this China Development Blog.  There is huge interest in the prospects for China and in what is actually happening on the ground here.