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May 2, 2002

Who stands to lose?

Who stands to lose from China's exaggerated reports of economic growth?

Probably not U.S. and other foreign investors, according to Pitt economist Thomas G. Rawski. "Many foreign firms invest in China because it's part of their global business strategy," he s aid. "They need a presence in China, and they don't pay much attention to short-term economic fluctuations.

"Another big component of foreign investment is the use of China as a production platform. From that perspective, slow growth may actually make investment in China more attractive because it lowers costs. For example, you pay less for Chinese computer programmers and MBA graduates if the economy is growing by 3 percent than if it's growing by 8 percent."

Even foreign businesses that invest in China with the goal of selling to Chinese consumers care little about the country's GDP, Rawski noted, because they target specific groups rather than the country as a whole. "If Proctor and Gamble sees an opportunity to sell shampoo because dandruff is especially unsightly for people with black hair — and China has lots of people with black hair — they want to know how shampoo is selling. They don't care much that China's GDP has been exaggerated."

Such exaggeration does have implications for U.S. trade and defense policies, said Rawski. "The Chinese have always been very straightforward in stating that one of the benefits of economic growth is that it enables them to increase China's military power," he said. "It's entirely possible that our own military bases its policies in Asia partly on perceptions of the Chinese economy. As a citizen, I think it's in everybody's interest for the U.S. defense establishment to have reliable information about Chinese economic growth, and that information has been in short supply in recent years."

But the biggest losers in China's jiabao fukuafeng are the nation's senior officials, Rawski maintains. "China faces very difficult economic problems. Without being able to trust the statistics they're given, China's leaders are forced to make tough choices with a partial blindfold."

— Bruce Steele

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