Three Ways to Compute the Relative Value of a Chinese Yuan Amount, 1952 - 2011
Determining the relative value of an amount of money in one year compared to another is more complicated than it seems at first. There is no single "correct" measure, and economic historians use one or more different indicators depending on the context of the question.
Most indices are measured as the price of a "bundle" of goods and services that a representative group buys or earns. Over time the bundle changes; for example, carriages are replaced with automobiles, and new goods and services are created such as cellular phones and heart transplants.
These considerations do not stop the fascination with these comparisons or even the necessity for them. For example, such comparisons may be critical to determine appropriate levels of compensation in a legal case that has been deferred. The context of the question, however, may lead to a preferable measure and that measure may not be a price deflator, which is used far too often without thought to its consequences.
Presented here are three indicators for making such comparisons in Chinese Yuan between any two years from 1952 to 2009. They are the CPI, the GDP per capita, and the (relative) share of GDP.
One or more of the indicators may be most appropriate for you depending on the nature of your query. See below for the definitions of the indicators and some examples.
You can make this computation among all the years between 1952 and the present.
Descriptions of the indicators
- The CPI is most often used to make comparisons partly because it is
the series with which people are most familiar. This series tries to compare
the cost of things the average household buys such as food, housing, transportation,
medical services, etc.
- The GDP per capita is an index of the economy's average output per person
and is closely correlated with the average income. It can be useful in comparing
different incomes over time.
- The GDP is the market value of all goods and services produced in a year. Comparing an expenditure using this measure, tells you how much money in the comparable year would be the same percent of all output.
For the source of the data see Sources of Annual CPI, GDP, and Population for China, 1952 to Present
Here Are Some Examples
Price of rice: For many centuries rice has been the most common foodstuff of the Chinese people. Until the late 1980s the price of rice was set by the government. In 1954, in Guangzhou (formerly Canton), the price of rice was 0.25 yuan per kilo (2.2 pounds). Rice is a standardized commodity of considerable importance in household expenditure. Therefore the CPI is the logical indicator. Using the CPI, the relative value of a kilo of rice was 1.56 yuan in 2009.
Teacher's wage: The average monthly wage of a teacher in senior high school, again in Guangzhou, was 101.80 yuan in 1956. For relative value in 2009, there are two alternative indicators that make sense: CPI and per-capita GDP. If the concern is with the purchasing power of the teacher's wage, then the appropriate indicator is the CPI and the relative value in 2007 is 630 yuan. If the objective is to assess the status of the teacher's wage, then the indicator is per-capita GDP and the comparable amount (relative value) in 2009 is 15,100 yuan.
China's first nuclear bomb: In 1964, somewhat earlier than expected by Western experts, China exploded a nuclear bomb, thus becoming the fifth nuclear power and the first Asian nuclear country. The nuclear project had begun in 1958. The year-by-year cost of the nuclear-bomb project is presumably a state secret. Even the total cost is not readily available. There do exist two estimates of the total expense of producing the bomb over 1958-1964 and we believe the number 12.86 billion yuan in 1981 prices is the more reliable one. The nuclear program was a government project of substantial magnitude. Therefore the only logical indicator is the GDP level. The year-2009 relative-value of the seven-year nuclear program is 861 billion yuan.
Lawrence H. Officer and Samuel H. Williamson, "Three Ways to Compute the Relative Value of a Chinese Yuan Amount, 1952 - Present," MeasuringWorth, 2011
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