The Executive Officer of the National Statistical Society of China Talking about the Results of ICP 2017
JOURNALIST OF CHINA INFORMATION NEWS
——the executive officer of the National Statistical Society of China talking about the results of ICP 2017
The World Bank released Purchasing Power Parities (PPPs) and the Size of World Economies – Results from the 2017 International Comparison Program(ICP) on May 19, 2020. The report shows the organization and implementation of ICP 2017, the PPPs of 176 participating economies, and the precautions for the usage of PPPs. In order to make the public understand the theoretical knowledge of ICP and use the PPP results correctly, the reporter of China Information News interviewed the executive officer of the National Statistical Society of China on the result of ICP 2017.
1. What is ICP? Why should ICP be globally implemented? Why does China participate in ICP?
ICP is the abbreviation of International Comparison Program. The purpose of ICP is to convert the economic aggregates expressed in the local currency of each economy into a numeraire currency. For a long time, the exchange rate has been used as the currency converter for international comparison. The exchange rate is simple, intuitive, and easy to understand. However, because the exchange rate mainly reflects the currency ratio of goods and services in international trade, it does not take into account of the price differences among countries. The exchange rate is vulnerable to be affected by fluctuation in international trade and financial market. When the exchange rate fluctuates greatly, the comparison results among countries will be affected.
In order to overcome the impact brought by large fluctuation of exchange rate, the United Nations Statistics Division and the University of Pennsylvania jointly carried out ICP activities to estimate the PPPs of participating economies from the year of 1968. PPP refers to comprehensive price ratio of goods and services in different countries and the amount of local currency required by a country to purchase equivalent goods and services in the base country. PPP eliminates the price level differences in different countries. So far, ICP has been conducted for 9 times and has become the largest international statistical program in the world.
China participated in ICP and conducted ICP surveys in the year of 1993, 1999, 2005, 2009, 2011 and 2017 respectively. The participation in global and regional ICP shows that China is an open, cooperative and responsible country, and helps to evaluate the economic status in the world with multi-dimension, and to improve the statistical capacity of China.
2. How was the ICP 2017 implemented?
ICP 2017 was organized and implemented at three levels. At the global level, the global ICP office hosted by the World Bank was responsible for coordinating global ICP activities. The Global Office (GO) of the World Bank was assisted by a Technical Advisory Group (TAG), which was responsible for the designation, consultation and guidance of technical methods. At regional level, six regional implementing agencies (RIA), including Asian Development Bank, OECD-Eurostat, African Development Bank, Interstate Statistical Committee of the Commonwealth of Independent States, the Economic Commission for Latin America and the Caribbean, and the Economic and Social Commission for Western Asia, are responsible for the coordination of regional ICP activities, technical guidance, and results production and release. At the national level, national implementing agencies of participating economy organize and carry out ICP activities, collect and submit basic data in accordance with the unified plan of the region.
In China, ICP is an exploratory international statistical cooperation program, organized and implemented by the National Statistical Society of China. During ICP 2017, about 40,000 outlets were selected in 31 provinces (autonomous regions, municipalities). Price data of more than 1000 items were collected from Household Consumption Price Survey, Machinery and Equipment Price Survey, Construction Price Survey, Housing Rental Survey, and Government Compensation Survey. Based on data quality assessment framework of ICP, intra-economy validation, and inter-economy validation of the Asia and Pacific region were employed to ensure the prices and structure data collected could reflect China’s price reality.
3. What are the results of ICP 2017? What changes have been made to the distribution of world economy?
The results of ICP 2017 are produced by the ICP Global Office of the World Bank based on data supplied by 176 participating economies. In 2017, the PPP-based GDP of 176 economies reached 119.5 trillion US dollars in total, 50.0 percent higher than the exchange rate-based GDP (79.7 trillion US dollars). For 161 economies, their PPP based GDP are larger than exchange rate-based GDP, accounting for 91.5 percent of all the participating economies.
In 2017, China, U.S.A, India, Japan, Germany, Russia, U.K, Brazil, France and Indonesia were the top 10 economies in the world estimated by PPP method and accounted for 60.7 percent of the world’s GDP. While estimated by exchange rate method, U.S.A, China, Japan, Germany, U.K., France, India, Brazil, Italy and Russia were the top 10 economies in the world. Compared with exchange rate-based GDP, almost all the economies had a larger GDP when using the PPP method, especially for developing economies. For example, India’s GDP rose from the 7th place using exchange rate method to the 3rd place by PPP method, Indonesia from the 16th up to the 10th place, Turkey from the 17th to the 13th, and Egypt from 45th to 19th.
4. The report shows China’s PPP-based GDP reached 19.6 trillion US dollars which means China became the largest economy of the world. How to understand the result?
According to the World Bank, China’s PPP in 2017 was 4.184. In other words, 1 US dollar was equivalent to 4.184 Yuan RMB. The exchange rate in 2017 was 6.76. In 2017, China’s GDP was 82.1 trillion Yuan RMB (not updated according to the revision results of the Fourth National Economic Census of China), which was 19.6 trillion US dollars converted by PPP. According to the result, China’s GDP accounted for 16.4 percent and 100.5 percent of those of the world and the U.S.A respectively. The exchange rate-based GDP of China was 12.1 trillion US dollars and accounted for 15.2 percent and 62.2 percent of those of the world and the U.S.A respectively, and ranked as the second largest economy in the world.
For the above results, we should consider the following 3 points:
Firstly, ICP in China is an exploratory and research program in the international statistics cooperation. Results are produced by the ICP GO and RIAs, based on data supplied by the participating economies, and in accordance with the methodologies proposed by the ICP Technical Advisory Group and approved by the ICP Governing Board(GB). Therefore, ICP 2017 results of China are not China’s official statistics. Please pay attention to the related notes in the report released by the World Bank. We should notice that, the comparison between two economies with similar economic structures is more reliable than comparison between two economies with different economic structures. Also, the quality of PPPs for goods is better than services.
Secondly, PPP can’t replace the exchange rate. PPP is a comprehensive price ratio, it covers the prices of both tradable products and non-tradable products. Exchange rate, another currency exchange ratio, only covered the prices of tradable products. Due to different coverage, PPP cannot be used to judge whether an economy’s currency should appreciate or depreciate.
Thirdly, China is still the largest developing country in the world. China is the largest economy in 2017 according to the PPP method (19.6 trillion US dollars), however, the GDP per capita of China only reaches 85.3 percent of the world average, and ranks 90th in the world, even lower than the rank by exchange rate method. So far, exchange rate-based GDP is recognized by governments all over the world, and by which China’s GDP still ranks the second in the world. In addition, China’s consumption expenditure per capita is lower than the world average, which is also in line with the general characteristics of a developing country.
5. Does the results of ICP 2017 have impact on China’s poverty alleviation plan?
The World Bank uses PPP to produce the international poverty line and monitor the global poverty. Updated after ICP 2011, the international poverty line nowadays is 1.9 US dollars one day for one person. The standard may be updated again by the World Bank after the release of result of ICP 2017.
It is necessary to note the following two points when using the international poverty line in China:
Firstly, the PPP of China is not applied in calculating international poverty line. The international poverty line is determined by the national poverty line of the 15 poorest countries in the world and their PPP for individual household consumption.
Secondly, China’s consumption structure is also totally different from that of the 15 poorest countries. Therefore, specific analysis should be made according to the reality when using the international poverty line.
All in all, because of the different consumption structures of countries, the international poverty line reflects the actual consumption of different countries to different degrees. It is not proper to use the international poverty line to judge the poverty alleviation effect for a specific country. International poverty line is mainly used by international organizations to measure, monitor or evaluate the global poverty with a relatively uniform method.