CHINA - China's three decades of double-digit economic growth have come to an end.
The country's leaders have signalled a policy departure, giving up its single-minded pursuit of economic growth in quantitative terms.
There will be no more pure gross domestic product (GDP) growth at all costs in future.
This new development has recently become official. China's National Bureau of Statistics (NBS) announced early this month that steps were being taken to end what it called "GDP supremacy".
The conventional GDP accounting regime will be suitably adjusted by giving more weight to activities such as innovation and research and development, much as the United States has recently done.
But China will do more adjustments in a number of areas, such as environmental improvement and people's livelihood.
The task is clearly full of challenges. Any attempt to adjust GDP accounts to reflect more of the quality aspects of economic production is an exceedingly difficult exercise.
For GDP accounting, most mainstream economists have long been aware of the inherent technical limits of factoring in intractable variables, such as "negative externalities" like pollution.
Recently, challenges to the GDP concept have arisen from those who argue that it ignores well-being, human happiness or satisfaction, and is, thus, not a good measure of people's welfare.
Changing GDP calculations to factor in externalities such as pollution would entail the enormous statistical complications of how to price pollution and its wide-ranging social impact.
Taking on board the second set of objections relating to welfare would involve the philosophical issue of how to measure human satisfaction or anything that involves inter-personal comparison of human happiness.
Welfare economists have long been debating, inconclusively, how to measure human happiness - called "utility" - without making a value judgment.
Neither the "cardinal concept" of quantifying utility nor the "ordinal concept" of ranking it has been universally accepted.
In any case, if the NBS were indeed trying to temper too much such "qualitative adjustment", this would render China's GDP accounts internationally incomparable.
Broader set of measurements
The most significant outcome of the NBS exercise is its plan to provide a more comprehensive and multi-faceted periodic assessment of China's economic performance beyond GDP.
In future, apart from GDP data to show economic growth, the NBS will also provide some 40 core indicators that can better capture economic and social changes in crucial areas such as industrial upgrading, technological development, environmental protection, rural-urban income gaps, urbanisation, people's livelihood and so on.
In this way, Chinese policymakers can develop a more balanced picture of China's "real" economic and social progress, not being unduly misled by the heady rise of GDP numbers alone.
Thus, the long-term significance of NBS' new move is not so much about the technical exercise of adjusting China's GDP accounting as it is about the underlying implication of a fundamental policy shift towards a kind of better-quality economic growth in future.
Indeed, China's Finance Minister Lou Jiwei, at the 2014 Group of 20 finance ministers' meeting in Cairns, Australia, confirmed such a change. China's macroeconomic policy would, from now on, focus more on comprehensive targets like stable employment and low inflation.
The government would no longer respond to short-term changes in certain GDP indicators, but would instead stick to its long-term goals of structural reforms and industrial upgrading.
Mr Lou also reaffirmed China's "new normal" of lower but more stable growth.
As economic growth fluctuates, the government would refrain from its past practice of taking unnecessary stimulus measures to artificially boost short-term growth rates.
China blase about becoming No. 1 economy
Almost by coincidence, the International Monetary Fund recently confirmed that China has overtaken the US as the world's largest economy, with China's total GDP for this year in purchasing power parity (PPP) terms at US$17.6 trillion (S$22.4 trillion), or just US$200 billion more than that of the US.
These PPP-based GDP estimates were already circulated last year; but the Chinese statistical authorities did not accept those figures.
International comparison of GDP of different countries has been seriously distorted by wide differences in their domestic prices, and also by the biased exchange rates when the GDP figures of various countries are all converted into US dollars for comparison.
The PPP method is supposed to correct such biases by using "international prices" - which are, in practice, very close to the US price level.
This is much like the Big Mac index, invented by The Economist magazine by using different prices of a Big Mac in different countries to judge the purchasing power of their natural currencies.
China's per-capita GDP in nominal terms for last year is about US$7,000, or one-eighth that of America. However, China's per-capita GDP on PPP is about US$13,000, which is one-quarter of America's.
The per-capita GDP on PPP carries a useful message that China's per-capita GDP is actually not so low, because one dollar in China can buy a lot more than in America.
But the concept of total GDP in PPP terms is quite different, as it merely uses foreign prices to value, and hence, inflate a country's domestic GDP.
This time round, as China has been officially confirmed as the world's No. 1 economy, Beijing has, quite rightly, given the cold shoulder to this event.
What does "No. 1 economy" really mean to China when its per-capita GDP (nominal) today is still lower than that of 80 countries in the world?
Having become the largest economy, China might also be wary of being asked to contribute more to various international obligations. More importantly, Beijing is no longer so obsessed with such GDP numbers, nominal or on PPP
The rise and fall of GDP fetish
China's economic performance based on GDP figures since economic reform has been truly spectacular, averaging 9.8 per cent for 1979-2013, or 10.1 per cent for 1991-2013.
China's per-capita GDP increased 100 times from 420 yuan in 1979 to 41,700 yuan (S$8,700) last year.
Such sustained double-digit growth has been historically unprecedented, well exceeding the past records of other East Asian high-performance economies such as Japan, South Korea and Taiwan.
The Chinese leadership had understandably taken much pride in such a sterling performance.
In China, the late paramount leader Deng Xiaoping had said that he introduced economic reform primarily to achieve high economic growth, which would make it possible for some people to get rich first, and then eventually the whole country would become a xiaokang (moderately well-off) society.
Thus, successive post-Deng leaders all adopted blatantly pro-growth policies.
Not surprisingly, as China's economic growth slowed down in 1997 due to the negative impact of the Asian financial crisis, then-premier Zhu Rongji made a loud battle cry of baoba (protecting 8 per cent growth).
Some 10 years later, China's economy - now much more internationalised - was again affected by the 2008 global financial crisis.
Then-premier Wen Jiabao promptly responded by hastily putting together a huge stimulus package of four trillion yuan to pump-prime the economy. Economic growth in 2010 quickly bounced back.
Suffice it to say that the Chinese leadership, long involved in managing pro-growth policies year after year with sterling results, have themselves inevitably become "hooked" on pure GDP growth as an end in itself, developing what Nobel-winning economist Joseph Stiglitz called the "GDP fetishism", an obsession that afflicts not just China but also former high-growth economies in East Asia.
In fact, Singapore's late foreign minister S. Rajaratnam in the 1970s warned Singaporeans against falling into such economic growth obsession that he called "GNPism", referring to gross national product.
Post-war Japan also had its episode of "GNPism" as Japan pushed "growth at all costs" until the start of the bubble economy in early 1990. Tokyo, at one time, was a very polluted city amid Japan's high growth.
China's "GNP worship" is certainly far more excessive. Local governments pursued GDP growth even more vigorously than the central government.
Local governments borrowed recklessly and invested blindly to push up local economic production, with scant regard for its environmental costs and other negative social consequences.
This is because GDP growth was, until recently, the most important key performance indicator for the career of local officials, and their promotion crucially depended on the GDP growth performance of their localities.
Beijing has, therefore, made a very wise move to downgrade pure GDP growth in its economic policy formulation.
This will render China's future economic growth environmentally and socially more sustainable in the long run.
It will be good for China, and also good for the region.
This article was first published on October 25, 2014.
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