In a latest report called "Human Development Report 2004" released by the United Nations Development Programme (UNDP), China's per capita GDP is calculated at 4, 580 US dollars, but in 2003 its per capita GDP was 1, 087 US dollars.

"When evaluating the real living conditions of a certain country, international institutions usually prefer per capita GDP calculated by purchasing power parity (PPP) to that calculated by nominal exchange rate," says Gao Yu, an official with the UNDP China Representative Office.

The UNDP report says that China's per capita GDP reaches 4, 580 US dollars, which is 14 percent higher than that of year 2003. China's ranking of Human Development Index (HDI) subsequently rises from 104 to 94 in 177 countries in the world.

But according to official statistics, China's per capita GDP in 2003 was 1, 087 US dollars. China ranks 110 in the world if using this number calculated by nominal exchange rate.

How to calculate per capita GDP?

Per capita GDP derived from the PPP calculations takes the price level as a reference. It will calculate the amount of clothes, food and rent that a certain amount of GNP can purchase in real life. "Most international institutions use the concept of purchasing power parity when making comprehensive comparison between countries.

"Compared with per capita GDP derived from nominal exchange rate, the GDP calculated by PPP is usually a few times higher." Some people even reckon that China's gross economy is only second to America if calculated by PPP method.

A common practice to compare per capita GDP among different countries is to convert the local currency into US dollars first and then compare.

However, one defect of this practice is that exchange rate is only the price relations of commodity and price in international trade. It cannot reflect domestic price level and domestic currency's purchasing power exactly. Moreover it is more subject to the fluctuation of currency price at the international market and therefore fails to indicate the relations between two countries' economic activities.

For instance, countries with robust currency will have a higher price level after its currency is converted into US dollars and so its GDP will be overestimated; and vice versa.

Therefore, UN began to test a statistic program called International Comparison Program (ICP) in 1968, which is aimed at comparing actual purchasing power in different countries. Its main idea is trying to reevaluate the same article and service with the same price. As calculating per capita GDP, it will adopt PPP method rather than nominal exchange rate. In this way it will be able to reflect actual income level of a country.

"However, most people in academic circles and some research institutions prefer to calculate GDP by PPP method," Zhang Yingxiang, a senior statistician with the State Statistics Bureau told the journalist. It is a "common practice" for official statistics departments to calculate per capita GDP by nominal exchange rate.

In fact, scholars pay attentions to the defects of GDP derived from the PPP calculations even though it has lots of advantages.

According to Zhang, it is hard to compare same kind of commodity or service because they may differ greatly in quality in different countries. On the other hand, the price of same kind of commodity may vary significantly at home and in foreign countries due to different industry structures. For example, a toy sells at 5 yuan in China but 10 US dollars in America. So one can simply get the conclusion that one RMB yuan equals 2 US dollars. But the result will be absolutely different if the product is some high-tech product.

Another point of view is that PPP method will deviate from facts when used to show economic conditions of developing countries although it works well in showing practical conditions of developed countries, because the quality of products, especially quality of service in developing countries is far behind that of the developed countries.

Even if China admits the PPP method is scientific and set China's GDP higher accordingly, China's economy cannot be interpreted as having a stronger purchasing power in the world market, for the payment is still settled by official exchange rate in the international market, says Song Xiaojun, an expert on international problems.

According to Song, setting China's per capita GDP higher in accordance with PPP will do no good to China. This is not the actual case and will exaggerate China's strength. In addition, this will give China more duty to pay fees in international organizations and will influence China's preferential treatments in international trade. "So this is not a mainstream calculation method."

Even the HDI designed by UNDP takes the GDP per capita derived from the PPP calculations as one of the reference indexes. The other reference indexes include: life expectancy, adult literacy rate, and gross admission rate from primary school to university.

The UNDP has been releasing a "human development report", drafted by an independent expert panel annually since its establishment in 1990. The "HDI" ranking in the report is an important index that helps compare actual living conditions among countries.

Unlike GDP that only indicates economic development, the HDI index tries to show people's life from different angels on the basis of "human itself".

China's HDI ranked 106 in 1998, but its ranking has risen later. In 2003, the ranking dropped to 104. But this year all indexes rise: life expectancy rises from 70.6 years to 70.9 years, adult literacy rate rises from 85.8 percent to 90. 9 percent, gross school admission rate from 64 percent to 68 percent.

However, China is still a country in the "less developed" group in the category of UNDP. The top 50 countries belong to "highly developed" group and the 30 to 40 at the bottom belong to the "less developed" countries.

Although China is not on the top of the ranking, it is better than some countries with higher GDP per capita in terms of life expectancy and education, some comments say. "Some media construe this index as "best place to live in the world". This is a misunderstanding," says Gao. The principle of the report is to advocate multicultural policy and eradicate discrimination and estrangement caused by nationality, language and religion.

The report indicates that 20 countries saw retrogression in the development level in 1990s. Of the 20 countries, 13 are situated to the south of Sahara. Spread of AIDS is the major cause for the retrogression.

Gao, as a project manager of human development tells journalist he is responsible for drafting a "human development report" for China, which will analyze Chinese people's living condition in detail.

By People's Daily Online