In the past decade the Chinese people have been repeatedly reminded that, according to the World Bank’s ranking, China is still behind 100th place in terms of per capita GDP. And in his public speech at Yale University on April 21, 2006 – after reviewing China’s phenomenal progress made during 1978-2005 – Chinese President Hu Jintao cited the World Bank’s ranking and reminded his American audience that “despite the success in its development, China remains the world's largest developing country.” In 2010, with China poised to become the second largest economy in the world, measured at market exchange rates, the same message is repeated yet again.
But the message is flawed.
In fact, the World Bank does not have a ranking based on per capita GDP. Every year, instead, it compiles a ranking of per capita GNI (gross national income, a measure of a country’s income, similar to GDP) for about 200 economies in the world. The table attached lists the GNI per capita, converted into US dollar using the so-called “World Bank Atlas method,” and the rank of GNI per capita for China and other large economies in 2009. Up to this moment, this ranking has never been seriously challenged.
In 2009, China was ranked 125th in per capita GNI among 213 economies, excluding Taiwan. However, this ranking has to be viewed within the context of a few relevant facts to which due attention has never been paid.
The first fact to consider is that the World Bank’s ranking pool is too heterogeneous in population size. Of the 213 economies in the pool, 58 economies are “micro economies” with a population below 1 million; and the population size ranged from Tuvalu’s 12,373 to China’s more than 1.3 billion.
Another missing fact is that very small economies tend to be rich. Of the 58 micro economies, 29 are “high-income,” 13 are “upper middle-income,” 14 are “lower middle-income,” and only 2 are “low-income,” according to the World Bank’s classification. In fact, a standard statistical test (the so-called “contingency table test”) shows that GNI per capita is not independent of population size.
Obviously, although more economies are ranked ahead of China in GNI per capita than behind, those economies ranked ahead of China tend to be small in population while those ranked behind tend to be large. Therefore, the World Bank’s ranking of GNI per capita is biased in measuring many countries’ performance in economic development and it should be described as “non-scientific” in the official Chinese terminology.
Even worse, not only is the World Bank’s ranking of GNI per capita misleading, it has also become a convenient excuse for many problems in China. The implicit logic is this: because “China is still behind 100th place in per capita GDP,” the Chinese people cannot afford to have fair distribution of income, equal access to quality education, effective protection of property in general and intellectual property in particular, transparent government, clean environment, enhanced democracy, etc. In a nutshell, China’s global rank of GNI per capita by the World Bank has been an excuse for vested interests to avoid change and to delay reform within the country.
Of course, if China can maintain its current speed of growth, it will “grow into” the top 100 in per capita GDP or GNI within five years anyway. However, if China maintains its current model of growth due to avoidance of change and delay in reform, it may grow into a major crisis before it breaks into the top 100.
Fortunately, an unbiased ranking index of economic development can be constructed for every economy*. And that index shows that although the Chinese economy still belongs to the poorer half of all economies, the Chinese population, as a whole, already belongs to the richer half of the world population. In fact, the Chinese have been in the richer half of the world population for about a decade, after the Asia financial crisis dramatically switched China’s position with that of Indonesia.
In his April 2006 speech at Yale, President Hu Jintao also said: “We aim to raise China's GDP to $4 trillion by 2020, averaging $3,000 per person. By then, China's economy will be better developed and its democracy will be further enhanced. More progress will be made in science and education. Its culture will be further enriched, the society will become more harmonious and the people will lead a better life.”
In 2010, China’s GDP is expected to be close to $6 trillion and its per capita GNI is expected to exceed $4,000, turning China from a lower middle-income country to an upper middle-income country. Hence, China remains a developing country but it has entered a new phase of development and thus can no longer afford to delay reform.
Given the fact that China’s growth has grossly exceeded its original plan and the truth that the Chinese population – as a whole – already belongs to the richer half of the world population, it is time for the Chinese government to accelerate reform and to deliver, now, what was originally promised for 2020.
Table: GNI Per Capita and Ranking Index for Large Economies in 2009
[Reprinted with permission from The China Europe International Business School.]