China will use PPP as a conversion factor for the first time

China will use purchasing power parity (PPP) as a conversion factor for the first time in 2011 to convert GDP (gross domestic product) to facilitate comparative studies with other countries.　　The National Bureau of Statistics has just released the news that it has pushed the public eye on "purchasing power parity", an economic term not well known to the public. What is purchasing power parity? Why use it to convert GDP? What impact will the new calculations have on China's economy?　　After a series of questions, we find that the new GDP data are mixed, both more closely aligned with the real economic life and some deviations that we cannot ignore. A new algorithm for how much a dollar equals the renminbi. In 2011, China will be the first full participant in the New World Bank's International Comparison Project (ICP) activity, so that our GDP can be compared with other countries through PPP conversion. China International Comparison Project Inter-Ministerial Coordination group has been established, by the National Bureau of Statistics, the Ministry of Finance and the National Development and Reform Commission and other 10 departments involved.　　Jiantang, director of the National Bureau of Statistics, said that full participation in ICP International statistical activities is conducive to more objective evaluation of China's economic size and international status, but also conducive to strengthening our statistical capacity-building. 陈建 (professor of Economics, Renmin University of China): for example, purchasing power parity (PPP) theory, such as buying a hamburger in the United States 5 U.S. dollars, and the same burger in the Chinese need 20 yuan, that is, when buying hamburgers, 20 yuan of purchasing power and 5 dollars equivalent,　　The renminbi's purchasing power parity against the dollar is 4:1. The theory is elaborated in a book by the Swedish economist Kassel in 1922, "currency and foreign exchange after 1914", which he believes is the basis for determining the exchange rate, which is the result of changes in the purchasing power of the two countries ' currencies.　　He then summed up the price movements and comparisons of more than 200 goods and services over a dozens of-year period in more than 50 countries, proposing to set the exchange rate based on purchasing power. PPP theory is mainly used for exchange rate, in the international financial field, only the exchange between different currencies. There is no question of currency exchange in domestic consumption, exchange, etc., and there is no need to use the theory of purchasing power parity.　　Even if this ratio changes, it will not have any impact on domestic prices.　　If purchasing power parity is used to assess countries ' economic strength, then the GDP levels of developing countries are likely to increase, while the economies of developed countries including Japan, Germany, Britain and other countries may shrink, and the United States is not in it because it is a country that uses the dollar. Annotations have two difficulties in converting each country's GDP into dollars at market rates, "first of all, because the market exchange rate is volatile, the size of the country's economy can easily change overnight by 10% or 20%." Moreover, in the application of market exchange rates, many poor countries appear to have very few national outputs. "--macro-economics (17th edition)Samuelson purchasing power parity conversion may overestimate GDP many economists tend to use purchasing power parity to compare the actual living standards of different countries, and ordinary people in daily life, unconsciously use this idea. Recently, many Shenzhen people began to buy daily necessities in Hong Kong. They found that the renminbi was worth more than the Hong Kong dollar in terms of market exchange rates, and that Hong Kong dollars were worth more than the renminbi in terms of the actual purchasing power of the two currencies.　　Does this mean that using purchasing power parity to account for GDP would be the real way to get closer to economic life? Zhang Bichong (professor, Central School of Finance, director of the International Finance Department: Our GDP is measured in renminbi, and international organizations need to compare them to dollars when they measure GDP, which faces two options: one is based on market exchange rates and the other is PPP. The results of these two methods will be different.　　In the past we used to take the previous algorithm, but international organizations believe that this method underestimates our gross domestic product. In fact, to examine the purchasing power of RMB, we must take into account the mechanism of RMB exchange rate, purchasing power parity is only one of the factors, is not a perfect choice; only in the medium term, it is a more appropriate choice.　　The use of purchasing power parity is the custom of international organizations, and we need to emphasize that there are also deviations in this type of conversion. PPP is measured by a comparison of trade goods, and for the purchasing power of a currency, the trade is only part of it, and some non-international exchanges are not included, such as public goods. For example, we can calculate the purchasing power parity between the renminbi and the US dollar by the prices of the products, such as apples and oranges, in China and the United States respectively. But with the same proportion of dollars and yuan, does the public service in the United States and China enjoy the same? Obviously not.　　So if we take into account the public goods in this respect, using purchasing power parity to convert our GDP, we are overvalued, this method does not take into account the importance of non-trade goods. The comment assumes that the value of a haircut in Chengdu and a haircut in Chicago is almost identical. The higher prices for haircuts in Chicago are caused by a series of economic differences, including higher minimum wages, stricter health safety standards, tougher environmental controls, higher energy and insurance costs. In other words, a haircut in Chicago is more expensive than a haircut in Chengdu because the United States is a more developed economy than China. There is no point in denying this for comparison.　　-Tom Holland "Another ridiculous prophecy of 2012" (Hong Kong's "South China Morning Post", November 12) PPP conversion, won the face and lost the lining? Last week, the World Federation of Large Enterprises released its report predicting that China could overtake the US as the world's largest economy by 2012, when it is adjusted by purchasing-power parity. And in The Economist Samuelson's book the macroIn the data cited in economics, China's gross domestic product was 5 times times that of market exchange rates, as early as 1998, after the conversion of purchasing power parity, "China has leapt beyond Japan to become the world's second-largest economic powerhouse."　　"So, what are the pros and cons between these amazing" undervaluation "and possible" overvaluation "?　　Zhang Bichong: We want to have more of a say in the world, and it's good to be a stronger economy, but at the same time, it's a price to pay. Judging from our present situation, the method of measuring purchasing power parity has overestimated our real purchasing power in some degree.　　In foreign trade, we may be under more pressure, we need to import more products, this is a concession in international economic exchanges.　　But high GDP can also give us a higher starting point, and it's a strategy to make up for the overvalued part by developing it. 陈建: In the recent period, the renminbi is facing a very big appreciation pressure, the western countries to suppress the appreciation of the renminbi is actually the use of this theory. Since our domestic prices and services have been relatively cheap for a long time, the West believes that the renminbi's purchasing power parity has been underestimated before, and therefore requires the renminbi to appreciate.　　They say, for example, that 1000 of millions of dollars of income in the United States can only live in poverty, only a small amount of goods and services, and 1000 of dollars if the current exchange rate, then the people who have this income in China's life will be very comfortable.　　If purchasing power parity is really used to calculate GDP, China's gross domestic product will undoubtedly have a substantial increase in China's international image to enhance the benefit of China's international status will also rise, but this to China's exports, currency appreciation will bring great pressure, popular point, that is really to win the face and lose the lining of the matter. The comment that China will first convert its economy at purchasing power parity means that there are plans to prepare for a one-off revaluation of the renminbi. But who is this man?　　Chinese or American? --Li Chenguang (First financial host) [FAQ] "conversion" is not "substitution" yesterday evening, Xinhua released the updated version of the news, the National Bureau of Statistics further explained: ICP is a global statistical cooperative research project, the main purpose is to calculate the various currencies of purchasing power parity (PPP), By using PPP as the conversion factor, the gross domestic product (GDP) of each country is converted into a unitary monetary unit, thus facilitating the comparison and evaluation of the actual economic scale and structure of each country.　　This research project is intended to facilitate international comparative studies and is not intended to replace the original GDP accounting.　　Gross domestic product (GDP) is the concept of a flow, rather than the concept of stock, not this year's figures are released from the founding to the present total, but only in the period of new production of things. In general, GDP accounting is based on the "Spending Act", which adds up to the market value of four parts of the final product, consumption, private investment, government expenditure and net exports. The city of various final productsfield value is the value of the exchange in the market, are measured by the currency, through the market exchange reflected.　　The market value of a product is multiplied by the unit price of the final product by its output. Jiantang, Director of National Bureau of Statistics, has stressed the importance, sensitivity and complexity of participating in global ICP activities. Full participation in ICP activities is conducive to establishing a good international image of China's open progress, and is conducive to more objective evaluation of China's economic size and international status. ICP has a long implementation cycle, a wide range of investigation projects, the investigation methods are complex, the results of the comparison is very uncertain, and China also lacks relevant experience, full participation in ICP activities will also face many difficulties and challenges.