Today’s post is a crash course in economics (for people who don’t like economics). The truth is that we get a lot of numbers thrown around in the media about China, but I don’t think they are as meaningful as CNN or Fox news want you to think.
Let’s get one thing clear straight out of the gate, China is obsessed with GDP. You can’t go more than a few days without seeing it as some headline on People’s Daily, and I was on the look out for parades or fireworks the day China passed Japan to become the world’s second largest economy.
Virtually any govt. promotion relies on improving GDP and little else.
So what exactly is GDP?
I know it’s a figure we see all the time in the media, but I think GDP might be misunderstood.
First of all, lot’s of stuff goes into GDP figures like: wages, investments, construction, sales, government spending…pretty much any time money changes hands it counts for GDP.
For example if Toyota built a car in China, the profits that ultimately head back to Japan, would be counted in China’s GDP, even though those profits don’t improve Chinese people’s standard of living.
Or if landslides and flooding destroy hundreds of homes, rebuilding them every month would still count as GDP.
Even if you just paid people to sit quietly, it could be counted as GDP.
So ultimately GDP isn’t a very useful number if you want to determine the quality of life in a country.
There are actually a lot of things that limit GDP that could be considered good things too, like not working on a weekend, having subsidized health care, taking long vacations, or not cutting down a forest. (If you are really committed to reading economics stuff, Mismeasuring Our Lives: Why GDP Doesn’t Add Up (Kindle) has some really interesting points, but is not an exciting read)
Does China’s GDP mean that it’s now a developed country?
Like I said earlier, GDP even counts money that is leaving the country, GNI (Gross National income) however does not. When we look at China’s GNI spread out over it’s 1.3 billion people, China ranks 109th (just behind Tunisia).
A better measure of development, that looks at more than just money, is the HDI (Human Development Index). This measure balances life expectancy, years of education, and average income. According to the United Nations, China ranks 89th by HDI, again just behind Tunisia.
China is improving at an impressive rate on this scale, but by this measure is a full 30 years behind the US.
I hope this makes it clear as to why China still claims to be a developing country, because by most measures, it is.
Tomorrow I’ll be trying to answer the big question – Does China’s GDP mean that Communism works?