International | Aug 27 2008
By Andrew Nelson
Imagine China’s provinces were all split off into independent national economies. If they were, China would house six in the top fifty economies in the world and the nation’s manufacturing and export powerhouse, Guangdong province, would be the world’s 14th largest economy on a purchasing power parity (PPP) basis, new research from Standard Chartered has revealed.
Standing alone, just one of China’s provinces, would represent a bigger economy than Turkey or Indonesia.
Standard Chartered explains that PPP is a useful measure for looking at individual markets because it shows you the buying power of their income, how much their dollar buys, giving insight about the local quality of life. When slicing the country up by per capita PPP, the report shows that the average Shanghai-ese has an income comparable with average Hungarians and Poles, while the average Guangdong-en should feel much in common with an average Brazilian.
While PPP data assume prices are similar across the country, and so fail to reflect the disparity between town and countryside (a major defining factor in China’s socio-economic breakdown), the analysts point out that much of the differences are still subsumed within each province’s average.
On this basis, the Shanghai-ese have the best quality of life in China, economically speaking, as the city’s average individual wealth level isn’t reduced by including a large number country denizens into the provincial average. It is easier to have a high level of income if one is a city. But if you take the city of Shenzhen out of Guangdong, the resident of Shenzhen is actually wealthier than the average Shanghai-ese.
Ranking the entire economies of countries with PPP numbers is problematic because quality of life does not translate into national buying power or international influence. On the world stage, exchange rates matters, so GDP measured by market exchange (MER) gives a more accurate gauge of national economic strength.
On an MER basis, the analysts point out that Guangdong would only be the 23rd largest economy in the world. Still a respectable result given this puts it next to Saudi Arabia. Guangdong actually makes stuff, rather than just sucking a finite resource out of the ground, and they’re in a pretty good place, all things considered.
By switching back to PPP then comparing Guangdong to the rest of Asia (ex Japan), and it comes in at number two, just behind Korea and well ahead of Australia and Indonesia.
In fact, Standard Chartered data suggest Chinese provinces would hold 14 of the top 20 Asian positions, with the Philippines falling to16th place and Vietnam altogether missing from the list. Australia and Indonesia sit at three and four, just barely ahead of Shandong and Jiangsu.
If you start combining some of China’s provinces into regions, the numbers become even more compelling, even on an MER basis.
Let’s say we bunch China’s six coastal provinces together -Guangdong, Shandong, Jiangsu, Shanghai, Zhejiang and Fujian- then you’re looking at an economy bigger than Spain or Canada on an MER basis. In fact, it would be the world’s seventh largest economy, Standard Chartered points out.
Switch back to PPP again and coastal China becomes the world’s third largest economy, with the analysts pointing out that it would produce 18% more than all of India.
A common belief has been that the coast is growing fast, while the interior provinces stagnate, but this isn’t the case says Standard Chartered. Its data show that all of China’s provinces are growing at similar rates. While this doesn’t correct an earlier disparity, from which the belief arose, it does mean that the poorer aren’t necessarily getting poorer.
In fact, the analysts point out that some of the poorest provinces are growing very fast. Guizhou’s GDP grew 62% over 2005-07, Yunnan 48%, Gansu 65%, if all from a lower base.
When you put China back together again, it is easy to see why it is not only the region’s, but one of the world’s powerhouse economies. The Standard Chartered analysis shows that China accounts for 28% of the region, but on a PPP basis, it makes up 45% of the region’s economy, dwarfing the rest of Asia, and even eclipsing Japan’s 31%.