Recently the World Bank released the World Development Indications 2004 on its website. On the global Gross Domestic Product (GDP) list China's ranking in 2003 dropped one place from that in 2002 and followed Italy as the seventh. As known to all on the global GDP list in 2002 China preceded Italy as the sixth. While China's economy grew vigorously during 2003 with a 9.1 percent GDP growth Italy's economy was in a downturn with just a 0.3 GDP growth. This gives rise to a baffling question: why China, whose economic growth was 30 times that of Italy's, exchanged positions on the World Bank's GDP ranking.

With this question the reporter visited Mr. Zhu Guangyao, executive director stationed at the World Bank by China. Mr. Zhu said after the reporter got across his purpose in coming that the unscrambling of the global GDP rating is a rational one as well as a careful one. The reasons are two fold:

First the World Bank uses a uniform method in calculating global GDPs in that it converts all kinds of local currencies into US dollars according to the exchange rates even though the exchanges rates keep changing. Second, the formulas and methods used by the World Bank in calculating global GDPs are complex. It is a method of computing the exchange rate by averaging exchange rates in the last three years and at the same time referring to factors such as the changes of exchange rates and prices in major Western countries, from which the GDPs of various countries can be measured and calculated in US dollars.

Mr. Zhu continued to explain with an example. According to the above two steps China's GDP in 2002 was RMB10.2398 trillion yuan, which was converted into $1.266 trillion and ranked sixth worldwide. Italy's GDP in the same period was 1.26 trillion in Euro and according to the method used by the World Bank was converted into $1.184 trillion, which following China ranked seventh. In 2003 China's GDP was RMB11.6694 trillion yuan increasing by 9.1 percent.

Using the World Bank exchange rate conversion method China's GDP was $1.409 trillion ranked seventh after Italy. Italy's GDP during the same period was 1.3 trillion measured in Euro, actually increasing by 0.3 percent year on year. However, according to the World Bank exchange rate conversion method it was converted into $1.465 trillion increasing by 23 percent and ranked sixth worldwide.

By the end of 2002 the exchange rate of Euro against US dollar was 1 Euro for 0.93 US dollars whilst by the end of 2003 the exchange rate of Euro against US dollar appreciated to 1 Euro for 1.12 US dollars. Euro appreciated by about 20 percent.

Considering that the exchange rate calculation method used by the World Bank is based on three year average, Italy's GDP in 2003 measured in US dollar increased by 23 percent. Whilst China adopts a managed floating exchange rate system and its exchange rate with US dollar keeps basically stable.

In other words China's GDP growth in 2003 was 9.1 percent calculated in RMB. It was generally the same calculated in US dollar. So the question becomes clear: It was the exchange rate that increased Italy's GDP growth in 2003 to more than 20 percent instead of the actual 0.3 percent and more than doubled that of China's.

Mr. Zhu finally said with a smile, the change of exchange rate is like a sleight of hand. It caused the GDP rankings of China and Italy to exchange positions. In the process of the change the exchange rate change was the only factor.

By People's Daily Online