A widening gap between GDP and ... reality
SCMP April 16 2007
In a recent column in this newspaper Jake van der Kamp drew attention
to some interesting statistics from Macau. Per capita gross domestic
product in the gambling enclave, he noted, last year overtook that
of Hong Kong - HK$217,000 against our HK$213,000.
But any visitor to Macau can quickly see that, by comparison with
Hong Kong, most of it appears grimy, overcrowded and poverty-stricken.
Indeed, while per capita income has almost doubled since 2000, average
workers' earnings have lagged far behind, and those of unskilled workers
even more so. The GDP figure is largely the result of construction
and gambling booms, little of which rub off on the average Macanese.
It is a very fair point. But it is equally fair to point out that
Hong Kong's per capita GDP is, for somewhat different reasons, equally
misleading if one wants to assess changes in the real disposable incomes
of your average householder.
Officially, GDP here is US$27,300 - which is roughly on a par (depending
on exchange rate fluctuations) with the likes of Australia and France.
But a relatively low proportion of Hong Kong's overall income goes
on compensation for employees - 51 per cent in 2005, reflecting both
the massive profits made by local property and utility companies, and
partly the profits passed through the city's books by mainland and
other trading companies.
The gap between statistics and reality has been getting far, far worse
thanks to the curious results of the methods employed by Hong Kong's
statisticians. Whether by chance or not, the official GDP growth numbers
are way out of line with other ways of calculating real incomes, whether
at the overall or household level.
According to the official data, the cumulative annual changes in GDP
- the government's headline figure - since 1997 come to no less than
37 per cent! We all know that is nonsense, but it happens to be the
figure that the government has boasted.
It compares with an actual increase, in current Hong Kong dollar terms
over the period, of just 8 per cent. The difference is supposed to
be accounted for by price deflation increasing the real value of Hong
Kong income. But which measure of deflation? The government's headline
growth figure uses the overall GDP deflator. But if you use the domestic
demand deflator, which is supposed only to reflect price changes affecting
the domestic economy, the cumulative growth falls from 37 per cent
to 24 per cent.
If you use the consumer price index as the deflator, the cumulative
GDP increase is a mere 16 per cent, or less than half the official
Even the government's own words reveal how statistics lie. Last year,
the official GDP was boosted by a 0.4 per cent decline in the overall
deflator even while domestic prices were rising 2 per cent.
This decline was, says the government, 'mainly due to continued deterioration
on the terms of trade' - meaning Hong Kong's imports were getting more
expensive relative to its exports.
Thus, by statistical magic, a decline in Hong Kong's real disposable
income is transformed into an increase in official GDP! A common-sense
interpretation of last year's growth would be that it was some 2.5
per cent less than the 6.8 per cent in official statistics.
Nor is this just a one-off event. If it were, it would be shrugged
off. But it has become semi-permanent due to the manner of calculation
and the size of re-exports relative to the economy. Most years since
1997 have seen a similar effect, which cumulatively account for the
huge discrepancies between the different measures of income.
Nor is it about to stop. The government forecasts that this year will
again see a 0.5 per cent decline in the GDP deflator even as the domestic
demand deflator rises by 1.5 per cent. So the scene is set for another
overstatement of real income by 2 per cent.
TOP OF THE PAGE