Reaction to China GDP Revision

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The Matthews family of mutual funds is focused on investing in different parts of Asia. You can access more on the Matthews China Fund (ticker: MCHFX) from its web site (as of Nov 30, 2005 its largest holding was China Mobile). The following is a short extract from Matthews' weekly commentary discussing China's recent revision of its previously reported 2004 GDP:

On December 20th, China's National Bureau of Statistics (NBS) announced that China's 2004 gross domestic product (NYSEMKT:GDP) should be revised from Rmb 13.69 trillion (US$1.65 trillion) to Rmb 15.99 trillion (US$1.98 trillion), making China's GDP 17% larger than originally stated. The revision was prompted after a nationwide economic survey indicated that the size of the service sector was previously underestimated, as China's old system of measuring the service sector did not cover some of the private companies and entrepreneur-service activities.

With the revised 2004 GDP figure, China became the world's sixth largest economy, surpassing Italy, while behind the U.S., Japan, Germany, the U.K., and France. The composition of China's economy has also changed with the share of the service sector increasing from 31.9% to 40.7% of GDP; the industrial sector's share decreasing from 52.8% to 46.2% of GDP and the primary sector's share shrinking from 15.3% to 13.1%.

Many have long doubted the reliability and accuracy of published economic statistics from China. Nonetheless, based on previous official statistics, some economists have stated that China is too reliant on low value-adding manufacturing and heavy fixed investments for economic growth, while lacking meaningful development in service industries. The recently revised GDP figure has somewhat invalidated such common perceptions. The director of NBS said that the new statistics from the national economic survey will better reflect China's underlying economic structure and the actual situation in China.