Will the Olympics Affect China's Economy?

Just a quick introduction, I'm Andrew MacDonald, now working on my PhD at Oxford in Politics (specializing in Chinese Political Economy of Development) and previously was involved in FACES in the 04 and 05 conference.

To get things rolling, I thought I'd address an issue I saw raised in Michael Pettis' great posts over at the Asia EconoMonitor. In essence, he implied in a side note to this post that the Chinese economy might have some trickle-down effects from the Olympics (whether good or bad, he didn't say):

Perhaps he really believes that, or perhaps he is just keeping in step with the request by regulators to stay upbeat before the Olympics. About a week after foreign newspapers reported that regulators had instructed domestic fund managers and market participants not to say or do anything in the next few weeks that might hurt the market

So I thought I'd look at the numbers.

Turns out that, according to the University of Michigan China Center Database (subscription req'd), China's 2007 GDP is about 251,481 (in 100m RMB), which compares to Beijing's (for the entire province) of 9006 (in 100m RMB). So Beijing accounts for about 3.5% of all of China's GDP.

Remember now too that the Olympics are going on for, at most, about a month of the year, so you have to divide the GDP of Beijing by 12. So one month of production in Beijing contributes about 0.29% of China's yearly GDP. So even if no work got done at all during the Olympics, China's GDP numbers would hardly notice the effect; it'd be at most statistical noise.

Of course, there are a number of events in other cities, the Olympics aren't really a month long, etc. etc., but from a quick back-of-the-envelope calculation, there doesn't seem to be much that the Olympics themselves can do to influence China's economy.

Edit: Now I see this post here by Rachel Ziemba that suggests that there may be some Beijing-level effects, but that the effects may be a wash. So it largely confirms, I think, the point I was making.

-- Andrew MacDonald