Improve quality of growth

Despite its colossal size, China's per capita GDP still lags behind that of some developing countries, not to mention developed ones

If calculated according to purchasing power parity, China is poised to overtake the United States as the world's largest economy in the course of this fiscal year, six years earlier than previously estimated, the World Bank's International Comparison Program said last week.

At a news conference days earlier, an official from the National Development and Reform Commission said that China's current per capita GDP exceeds $6,700 and thus it falls into the category of a medium-to-high income country. He also said China will likely rank as a high-income country if it can do just a little better during the next Five-Year Plan period (2016-20).

Quite a few Chinese people immediately cast doubts on these claims. As a matter of fact, this is not the first time that such a response has emerged. Any time a government department or research institute puts forward the view that China has reached, or at least some of its developed regions have reached, the level of a middle or high-income country, fierce voices of disagreement are always heard.

Yet according to the latest World Bank data and international standards, China's economic scale is enormous and its per capita GDP is above the world's middle level. Thus, the NDRC official's voiced optimism regarding China's economic status is not completely unreasonable.

However, the suspicions expressed on social media against such optimism are also by no means groundless. Despite its colossal economic size, it is a basic fact that China's per capita GDP still lags behind that of developed countries, and even a large number of developing ones. Furthermore, not only quantity but also quality should be taken into consideration when measuring a country's GDP, either on a general or a per capita basis. Only with such an approach can a scientific and objective judgment be made over the country's economic development and its place in the world.

The incomes of a large number of Chinese people will be raised if calculated on a per capita basis, yet their income is far from being at the middle level if current high housing prices are factored in. In 2013, China's Gini coefficient, a gauge of a country's wealth gap, was 0.473, much higher than the internationally recognized alert level of 0.4. This is a reflection of the tangible uneven income distribution in the world's soon-to-be largest economy.

A country's newly created economic output or revenues will be distributed among the government, enterprises and households during a given period and there exists a zero-sum model among the three. If the actual incomes of the government or enterprise grow faster than its GDP, the share of household income will decline in its total economic aggregate. Compared with the GDP, any faster growth of government and enterprise revenues will mean a slower growth rate for household incomes.

Two countries may have different GDP resources at their disposal yet still create the same amount of additional GDP. This is like a building looking starkly different in appearance when it has been built on the same foundations as one that has been demolished. Besides, the different directions in which GDP grows will also produce different results. For example, repeated or misappropriate construction may cause overproduction, wasting of limited resources or damage to the environment. Thus the blind creation of a certain amount of GDP is not equivalent to the same amount of effective GDP.

China only needs to expand its total economic size if it is merely satisfied with acquiring the nominal title of a high-income country, but if it intends to improve the quality of its people's lives the country will have to work harder to adjust its economic structure, raise its economic efficiency, and push for its economic transformation and upgrading. It should also work to conserve its limited resources, protect the environment and perfect its income distribution model to narrow the gap between the rich and poor.

At the same time, it should strive to double people's actual incomes, that is their incomes after deducting inflation and the increase in housing prices.

The author is director of the Statistical Science Research Institute under the National Bureau of Statistics. The Chinese version of this article appeared in Economic Daily.