If you’re looking to turn your world upside down today, try this on for size. What if China’s economy is actually bigger than everyone thinks?
Did your head just go “Boom?” Well, then maybe this will blow your mind: The Wall Street Journal is putting forth that idea. Yes, one of Western media’s biggest proponents of China’s heading for a hard landing, thinks that China’s government isn’t over reporting economic statistics, but instead, underselling them.
It seems a study by Daniel Rosen and Beibei Bao for the Center for Strategic & International Studies says that the $10 trillion economy China reported last year is actually closer to $11.5 trillion.
The study says China calculates gross domestic product using an antiquated methodology that undercounts expenditures on things like services and research and development.
Recently, the European Union and the US saw their economies grow in size after revising their respective methodologies to the latest global standard. The study applied the same revision to China’s economy and said if the services sector was bigger that would justify lower levels of electricity generation.
Of course, WSJ couldn’t leave it at that.
“But a bigger economy isn’t necessarily as bullish an assessment as it sounds. Debt-to-GDP levels would be a bit lower, but not meaningfully enough to matter,” said the paper.
More jobs in the service sector could indicate inequality worse than already thought. And if real estate is actually bigger percentage of the economy than recorded, then the recent-weakness in the real-estate sector would have a bigger impact on the economy than already thought.
If China is a lot bigger than currently thought, the study suggests it has the potential to surpass the size of the US economy as early as 2020. Of course, that works on the flipside as well. Any downturn in the Chinese economy will have a greater effect on the global economy.