Chapter 5 4. The GDP Paradox

Chinese people have a GDP complex, but they are always troubled by GDP, so we need to spend some space to talk about this issue.China seems to be facing a kind of embarrassment: to say that China has risen, it means that China’s economic aggregate and comprehensive strength have reached the second place in the world; Ranked around 100 in the world, lower than Albania.However, I have been to Tirana, the capital of Albania, and the port city of Duras five years ago, and their prosperity is not as prosperous as any prefecture-level city in the coastal areas of China.China has developed to the point where it is today, and we should give Chinese people a realistic explanation on the issue of GDP per capita.

Let me first recall an experience related to GDP. One day in April 2008, I went to give lectures in Lagos, the largest city in Nigeria.We met a Chinese businessman who had just visited Equatorial Guinea in a hotel in Lagos, and we chatted.I asked him which country is better, Equatorial Guinea or Nigeria? "Nigeria, of course," he told me with certainty.I said, "How is that possible? The per capita GDP of Equatorial Guinea is US$20,000, while that of Nigeria is only US$2,000." He told me, "No matter how dilapidated Lagos is, at least there is running water, but the capital of Equatorial Guinea is big Some areas have no running water and no sewage drainage system. The most frightening thing is malaria. There are no Chinese resident in Equatorial Guinea, including the previous Chinese ambassadors, who suffer from malaria." He then described to me the horror of suffering from malaria in Africa: " I have a high fever, my whole body hurts, my head feels like it’s going to explode, and I’m in a trance, I really want to hit the wall and die.” From my own observations, the cityscape of Lagos is at least 30 years behind that of Beijing.If what the Chinese businessman said is true, I can imagine how backward Equatorial Guinea is, but Beijing's per capita GDP was only US$10,000 in 2009, and Equatorial Guinea's per capita GDP is already twice that of Beijing.

How to explain this paradoxical phenomenon?In fact, the reason is not complicated: in the mid-1970s, oil was suddenly discovered in Equatorial Guinea, but these resources were controlled by the president and several relatives, and then foreign companies came there to invest in the development of oil, so this poor small country suddenly had The per capita GDP is 20,000 US dollars.Relying on resources to "get rich overnight", but this kind of "richness" did not bring running water to the people, did not bring sewage drainage systems, did not bring employment and the middle class, and the wealth of the country was completely controlled by a very small number of people, so the per capita GDP has nothing to do with the lives of ordinary people.Let me make an analogy: Suppose that Chaoyang District has the highest per capita GDP in Beijing, and Yanqing County has the lowest. However, one day Yanqing County suddenly discovered a large gold mine, and later large companies came to invest, and the population of Yanqing County It is relatively small, and its per capita GDP may surpass Beijing's Chaoyang District overnight.Therefore, when we examine the development level and quality of life of a place, we must consider various factors, such as economic development level, education level, medical level, housing level, average life expectancy, etc.In contrast, the United Nations Human Development Index is slightly better, because it includes some social indicators, but this index also has its own problems, for example, the proportion of per capita GDP in it is too high; housing and home ownership rates are not considered, Housing is the biggest asset of the Chinese people, so it is not accurate to use it to measure China.

In the summer of 2009, I participated in a seminar held by the United Nations Human Development Index Office (HDRO) in Geneva.Many participants were critical of the methodology used to compile the HDI.The representative of Russia believed that the data used in the report must be more impartial and that there should be greater transparency in the process of preparing the report.The representative of Morocco considered the current method of ranking countries to be unscientific.He believes that countries should be classified according to their degree of comparability before making comparisons. For example, comparing a poor country with few resources and a rich country with rich resources does not explain much.The representative of Iran believed that an indicator should be designed to integrate the damage caused to a country by external factors, such as financial crisis, food crisis, fuel crisis, etc., into the development indicator system.The representative of China believes that it is necessary to "cautiously introduce immature or controversial indexes and calculation methods, pay attention to absorbing and borrowing the increasingly rich development knowledge and successful experience of developing countries, and better reflect the various development challenges facing mankind."The person in charge of the Human Development Report Office finally admitted that this index system is indeed controversial, and it can only be revised and improved through everyone's efforts.In other words, even for the indicator systems of international organizations, we should test them with a realistic perspective and use them with caution.On the indicator system, Chinese scholars should make their own original contributions.

In addition, we also need to understand the two main methods of calculating GDP, one is calculated according to the official exchange rate, and the other is calculated according to purchasing power parity.Our current statistics still use the first method, and I personally always think that the purchasing power parity method is relatively accurate, because it is generally believed that the official exchange rate underestimates the actual purchasing power of the renminbi.Using the purchasing power parity method can more accurately reflect the actual situation of a country's economy.I have already given the example that eating in a Japanese restaurant is 10 times more expensive than in China.I can also use European haircut prices as a comparison.A simple haircut for a boy in Europe costs 20 euros, but in China's first-tier big cities, such a haircut costs about 20 yuan. At the beginning of 2009, the official exchange rate between Euro and RMB was 1 Euro equals 10 RMB, so European boy’s haircut cost RMB 200. According to the official exchange rate at that time, the GDP created by European boy’s haircut was 10% of China’s. times, so the GDP calculated by the official exchange rate is likely to cause a serious misinterpretation of the actual economic scale of each country.

In view of this situation, more and more institutions in the world have begun to use the purchasing power parity method to calculate GDP, that is, to calculate the actual purchasing power of a country's currency in the country through the prices of a package of goods and services in different countries, and then calculate the actual purchasing power of the country. Cross-country comparisons are made on a cross-country basis to correct for possible distortions introduced by exchange rate calculation methods.Of course, even if purchasing power parity is used, it does not necessarily guarantee accurate comparison. For example, it is not easy to compare the quality differences of the selected package of goods.But overall, purchasing power parity seems to be more accurate than the official exchange rate.Perhaps in the future, China can publish the GDP calculated by the official exchange rate and purchasing power parity at the same time, which will help Chinese people and the outside world to understand China more objectively.

I personally don't mind continuing to use official exchange rate calculations on some occasions, it may help us maintain that modest and uplifting spirit.The Chinese are used to slowing down with stillness and advancing with retreat, so China's rise is very determined.But at the same time, I also think that we must have a more accurate grasp of our true strength, neither exaggerating nor shrinking, so as to give a more convincing introduction to the Chinese and the outside world.Moreover, the adoption of purchasing power parity is conducive to correcting some deviations in the current statistics, so as to avoid China's own decision-making mistakes.For example, based on official exchange rates, China's foreign trade accounts for 60%-70% of GDP.This data obviously exaggerates the dependence of China's economy on foreign trade.It is true that China's export-oriented economy has increased China's dependence on foreign trade, but I personally think it is impossible to reach this level.In the statistics of foreign trade dependence, the foreign trade volume is calculated based on the official exchange rate and the US dollar, while China's GDP is calculated based on the RMB. In this way, the proportion of foreign trade is naturally magnified a lot.

The adoption of purchasing power parity is also conducive to preventing foreign forces from misjudging China and avoiding geopolitical crises.Angus Maddison talked about how Patten, the last governor of Hong Kong, misjudged China's strength, which may have led to his later conflict with China on Hong Kong's political reform.Patten wrote an article in The Economist in 1997, saying that "the GDP of the UK is almost twice that of China, and China's GDP is roughly equal to the sum of Belgium, the Netherlands and Luxembourg." According to Maddison's purchasing power parity method According to calculations, Britain's GDP at that time was about one-third of China's.China's GDP is 6.5 times that of Belgium, the Netherlands and Luxembourg combined.

I personally think that over time, the adoption of a more realistic purchasing power parity approach will be the general trend of the international statistical community.Chinese social scientists should have the courage to go beyond the mainstream Western indicator system, and beyond the various indexes of many international organizations that have been produced under the influence of the Western indicator system.We should truly develop a more objective and accurate indicator system independently with the spirit of seeking truth from facts, and influence international comparisons worldwide from the perspective of standards.As I mentioned earlier, if we want to measure the wealth of Chinese people, many current evaluations and rankings will undergo major changes if we incorporate two factors: one is the actual purchasing power of the currency; the other is real estate.Chinese people's real estate generally accounts for about 60% of their family's net assets. If any international comparison involving living standards fails to reflect this fact, it cannot reflect the actual living standards of Chinese people.If we compare Switzerland and Shanghai, the home ownership rate in Switzerland is only 36%, while in Shanghai it is 75%. Quite a few citizens own more than one house.Although the nominal GDP of Switzerland is 5 times higher than that of Shanghai, meals and haircuts are 10 times more expensive than in Shanghai, and the rate of home ownership is only half of that of Shanghai. Therefore, the wealth and living standards of many Shanghai citizens are significantly higher than the Swiss average.

Another hard indicator is the average life expectancy. The average life expectancy of Beijing, Shanghai and other big cities in China has reached 80 years, surpassing that of New York.According to my observation, if the average life expectancy reaches 80 years, it must be at the level of developed countries, and there are no exceptions in the world.Therefore, we must work hard to establish a set of indicators that seek truth from facts and more accurately reflect the actual conditions of China and the world. This will be an important aspect of China's soft power construction, and Chinese social scientists can do a lot.

If we say that GDP reflects more quantitative changes, then we should also pay attention to many qualitative changes in China.South Korea's "Joongang Daily" published an article titled "China's 'Huawei' Phenomenon" on February 8, 2010, and put forward unique insights into China's development from quantitative change to qualitative change: At the end of last year, a piece of news came out from Stockholm, the capital of Sweden, that shocked the western IT industry.Chinese telecommunications equipment company Huawei won the fourth-generation communication network construction project in Sweden.Ericsson, which claims to have the world's highest level of communication technology, is located in Sweden.In the market of developed countries, Chinese companies beat the world's most technologically advanced companies?The industry will naturally be surprised by this.In fact, this is not a surprising thing.All this is possible because Huawei possesses a technological level that is not inferior to its competitors.China also coined the term "Huawei Phenomenon" from this.Not just IT, BYD in the electric vehicle industry, China Cord Blood Bank Enterprise Group, which was listed in New York last year, and Wuxi Suntech, a leader in the solar energy industry, are growing into world-class technology companies.The "Huawei phenomenon" also appeared on the Wuhan-Guangzhou high-speed railway that opened last year.The average speed of the Wuhan-Guangzhou high-speed railway reaches 350 kilometers per hour, surpassing developed countries such as Germany, Japan, and France.Through high-speed rail, we seem to see the speed of technological development in China. "It's only ten years, how can..." The industry both sighed and praised. There is a secret to China's super leap.China is not simply catching up with the technology of developed countries, but has leapfrogged three or four stages in the technology development process and reached the level of developed countries in one leap, achieving a leap forward.Trade the market for technology, and then transplant the cutting-edge technology to Chinese enterprises.Experts believe that China has made great leaps in large industries such as automobiles, shipbuilding, steel, and aviation.What makes this all possible is national leadership.Over the past ten years, the annual growth rate of R&D investment has reached about 20%.In addition, the government is also directly involved in the introduction of overseas talents.Enterprises are also actively responding to national policies.It was the joint efforts of the country and enterprises to carry out technological research and development that created the "Swedish shock".In various industries in China, one after another "Huawei" is active.Despite this, South Korea's understanding of China still remains as a "counterfeit and shoddy country".Only by changing our understanding of China can we understand the real China. It should be said that this common progress in quantity and quality is where China's power to shake the world lies.