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Does Size Matter? (In the U.S. and Chinese Economies, That Is...)

A ChinaFile Conversation

Last week, President Obama’s State of the Union Address touted a U.S. economic recovery. Meanwhile, China’s economic growth is slowing and Ma Jiantang, head of the National Bureau of Statistics, has said that China’s economy, contrary to overseas media reports, has not overtaken the economy of the United States to become the largest in the world. Why does this debate persist? What lies in the details? Does size even matter? —The Editors

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Since April, when ChinaFile last discussed the China-overtaking-the-U.S.-in-GDP story, the story has continued to command massive amounts of media attention on both sides of the Great Firewall. In fact, if we limit ourselves to only the past month or so, we find Nobel Prize winner Joseph Stiglitz using it to mark the beginning of the “Chinese century,” and then, this past Wednesday, National Bureau of Statistics chief Ma Jiantang taking great pains to publicly argue that, no, the Chinese economy had not overtaken the American economy. Both claims ignited firestorms of controversy—as they were almost certainly designed to do.

But why do so many people care about GDP rankings? More precisely, how did this somewhat crude measure of aggregate economic output assume such a central role in their geopolitical imagination? In the Chinese case, it is easy to say—and very likely true—that a century of humiliation at the hands of Western powers drove many Chinese towards a particularly fervent strain of nationalism and a collective fixation on “overtaking the West,” but it is somewhat more difficult to explain why they often measure national power, especially relative national power, in GDP.

Part of the reason is undoubtedly the lack of attractive alternatives: per capita figures do not measure aggregate “national strength,” whereas military capacity no longer captures the public imagination nearly as strongly as it did during the Cold War. As Stiglitz points out, the idea of being “the largest economy” does hold a certain romantic appeal almost everywhere.

That said, at least in the Chinese case, societal obsession with GDP probably also has much to do with historical policy decisions made by the PRC government. One could arguably trace its origins to the First Five Year Plan, which laid out growth targets in terms of industrial and agricultural output growth rates. Since 1980, the central government has consistently laid out its economic targets in terms of GDP growth rates. Local governments quickly followed, and by the later 1990s meeting GDP growth targets had arguably become their number one priority. Given the vast amount of domestic media and intellectual attention lavished on these growth targets, it should surprise no one that many educated Chinese, particularly those with some nationalist tendencies, eventually came to cognitively link GDP statistics with both “national power” and the “health of the economy,” and, therefore, GDP rankings with relative “national power.”

In recent years, this has become a major political liability for the Party. Not only is GDP growth slowing down, perhaps permanently, but many policymakers have come to realize that prioritizing GDP growth over other policy objectives often leads to waste, environmental deterioration, and massive corruption. The central government has tried to weaken GDP’s grip on the public imagination, but their efforts have largely fallen flat. In 2012, for example, a tentative campaign to promote “happiness indexes” as an alternative measure of development swiftly ran out of steam amid widespread online mockery.

As for Ma Jiantang, it is unclear whether his remarks were targeting a domestic or a foreign audience. The Chinese government probably wants to avoid the “number one economy” moniker in either context: Internationally, it probably dislikes the “soft obligations” that accompany being called “the world’s leading economy,” however far-fetched that description may be. Domestically, (accurately) situating China as a country still playing economic catch-up to the West may allow policymakers to ask for more public patience with economic development, and perhaps also help them corral nationalist sentiment. In any case, the mere fact that a senior official was sent out to publicly dispute the substantively vapid claim that “China has overtaken the U.S. in GDP” speaks volumes about the potential social impact of that claim. For this, the government itself must shoulder much of the blame. As the old Chinese saying goes: “作茧自缚” (zuò jiǎn zì fù)—weaving a cocoon, only to bind oneself.