Everywhere you look these days, a different news organization is publishing a story about how China‘s economy is suddenly, dramatically smaller according to stats put out by the World Bank.

It’s the herd mentality in action or, if you prefer, pack journalism. It’s like these guys have just discovered what Purchasing Power Parity (PPP) is or that GDP calculations based on PPP can be dramatically different to standard stats that are most commonly used.

I guess it sells newspapers to publish "breaking news" and hence we get stuff like this. Apparently there was a World Bank study, and apparently Albert Keidel at Carnegie is publishing something on the subject as well. Interesting material, and I’ll read anything that Keidel puts out (his article on Chinese inflation recently was thought provoking), but this is not earth-shattering information, people.

I shouldn’t be too surprised, though. Some of the writers of these news pieces can’t tell the difference between a flow and a stock and bandy economic terms about improperly. Annoying, to put it mildly. The scary thing is that politicians read this tripe and sometimes base their decisions on their imperfect understanding of bad articles. It’s all very frightening.

Anyway, here are some links for reference. The Businessweek piece is OK.

New Report Cuts China Economy Down a Size

World Bank: Economies of China, India Less than Estimated in New Measure

Estimates Shrink Chinese Economy

World Bank Offers New Take on GDP (firewalled)

One final thought. The politics here are interesting. The "China Threat" lobby in the U.S. and elsewhere profit from China having a large, rapidly-growing economy. They point to this as an economic threat to U.S. interests, and that China‘s wealth will be employed to fund the inevitable military confrontation. The anti-trade lobby also uses big GDP numbers to convince its converts that China is growing quickly at the expense of the West.

Therefore it is in China‘s interests, politically speaking, to support any calculation that makes China‘s GDP look smaller. Beijing can then say, "Hey look, we aren’t so big. Nothing to worry about from us."

It’s all rather strange and twisted, isn’t it? Remember that at the heart of this discussion is a rather obscure (unless you’ve taken Macroeconomics) tool that can be used for, among other things, comparing GDP between countries.

If anyone literally fell asleep while reading this post, please send me an email and let me know. I like to keep track of these things.