– China, Growing Superpower

China economy even bigger than thought
By David Barboza The New York Times

SHANGHAI China said Tuesday that its economy was far bigger than previously estimated, and the new figures suggested it had probably passed France, Italy and Britain to become the world's fourth-largest economy.

The announcement sent economists and financial prognosticators scrambling to rethink their assessments of the rise of China and its role on the world stage. Many of them even brought forward their estimations of when China might eclipse the United States as the world's biggest economy.

"We now have a new snapshot of the Chinese economy," said Hong Liang, an economist at Goldman Sachs in Hong Kong. "This is not slightly bigger - it's a significantly bigger economy."

China revised its economic data on Tuesday after a yearlong nationwide economic census uncovered about $280 billion in hidden economic output in China for 2004. The amount is roughly equivalent to an economy the size of Turkey or Indonesia, or 40 percent of India's economy.

That means that China's gross domestic product in 2004 was nearly $2 trillion, not the $1.65 trillion previously reported. With its GDP up 17 percent, China was the sixth-largest economy in the world last year.

And with China expected to report another year of sizzling economic growth for 2005, its economy may already be ranked fourth, trailing only those of the United States, Japan and Germany.

Economists say there is little doubt now that China is a full-fledged economic superpower. While still far behind the United States, whose economy was valued at about $11.7 trillion last year, and the European Union, if it is considered as a whole, China continues to be home to the world's fastest-growing major economy, jumping at a rate of more than 9 percent over the past few years.

In 2005, it is expected to record a $100 billion trade surplus as its toys, electronics, textiles and other goods flood the world markets. China's currency, the yuan, has also become a greater force in global markets since it was revalued slightly this year, dropping its longstanding peg to the dollar.

The country has also been accumulating foreign currency reserves at a very high rate over the past few years. By the end of 2006, economists say, China could have $1 trillion in foreign currency reserves, much of it in U.S. dollar-denominated Treasury notes, making it an even more powerful force in the global markets.

Economists say the data suggest that the country's economy is healthier, more diversified and more capable of sustaining growth than was previously believed.

The revised figures, for instance, show that a much stronger services sector has emerged, taking some weight off the manufacturing sector. They also show that there are more small and midsize companies in the country.

The larger size of the economy bodes well for China because experts had long cited its high investment-to-GDP ratio as a troubling and unsustainable factor that could eventually overheat its economy.

That ratio now appears slightly more reasonable and sustainable.

Stephen Green, a senior economist at Standard Chartered Bank in Shanghai, said the new figures calmed some fears about imbalances in the economy.

"A bigger economy means all the dangerous ratios, such as investment as a percentage of GDP, all fall," Green said. "And they are usually cited as showing the Chinese economy is in danger or headed for a fall."

Dong Tao, an economist at Credit Suisse First Boston, said that China might still be underestimating the size of its services sector by about $200 billion.

Other experts are advancing their forecasts of when China might overtake the United States as the world's largest economy. Some have advanced their estimation to about 2035 from 2040.

The figures are expected to affect government planners and policy makers, altering everything from monetary policy and inflation forecasts to how government officials allocate funds to different regions and sectors of the economy.

Hong, the Goldman economist, said: "The most significant implication of this is: Does China have some structural illness or cancer? Or is there an error with the X ray?"

He added: "The last few years so many famous economists cited the very high investment to GDP ratio as a serious problem. Now it looks like the X-ray machine had a problem, not the patient."