When China talks the world listens. Many will say that they are not telling the truth, but few can offer anything better.
China accounts for one-third of the world’s economic growth, so data related to its GDP is likewise met with a massive amount of interest around the world. But this has also become a point of contention, with many saying that China’s economic data — which is mostly collected by the Chinese government — is unbelievable, that it’s altered to make the country’s economy look better than it actually is. This is to the point that if you cite China’s official GDP growth rate in an article or conversation you are sure to find someone piping up claiming that it can’t be believed, as though it was concocted out of nowhere to fill the same function as a propaganda poster.
I don’t necessarily have a problem with this perspective — maybe they’re right? Providing a platform for debate is one of the primary functions of the modern journalist. The problem that I have with this is as follows:
A) I have yet to read or hear anything from anyone doubting China’s GDP statistics cite any reliable data — or, very often, any data at all — to back up their claims. Basically, they’re saying, “We don’t believe the Chinese government because it’s the Chinese government.” Which is fine, but doesn’t leave us with much to work with. I don’t believe that some American lady standing on the side of a highway outside of Beijing counting trucks is going to present a more believable data set on China’s growth rate than that of China’s Bureau of Statistics — even if the later are a bunch of lying commies who for some reason find it worth their time to try to dupe the West.
B) This perspective has become trendy. The believability of China’s GDP data has become a social topic that people talk about over drinks. Everybody is name-dropping someone who knows the real figure or someone who “doesn’t believe it.” Like with most trends, contrary positions are often met with condescending smirks or scoffs — as though you’re too naive or uninformed to be an insider to their exclusive group of non-believers. Now this, in and of itself, doesn’t mean that this perspective is inherently incorrect, but it does diminish the propensity for a productive conversation on the topic.
As usual, the Yale economist Stephen Roach put this well:
The fixation is on headline GDP. The 30-year trend was 10 percent, the latest number was 6.9 percent or 6.8 percent if you want to look at a quarter-to-quarter basis. There are those that tell you that the number is a third of that, and somehow they know more than the Chinese statisticians do. I would dismiss that.
The story of China is not the slowing of top-line GDP, but the shift in the mix of GDP from manufacturing to services, from investment and exports to consumption.
I’ve written for years about the inaccuracies of U.S. economic statistics. I think that China has comparable problems in majoring its economy with accuracy, but not for reasons that most would lead you to believe, because it’s a conspiracy on the part of a bunch of communists that are trying to pull wool over our eyes or whatever. It’s very difficult for them, it’s very difficult for us to measure the pace of economic activity in a system where the structure is changing as rapidly as it is in China. Services are notoriously hard to measure, and that’s true in the United States, and that’s true in China. Shifting to this hard to measure service sector is a big challenge for government statisticians all over the world.
The World Bank and economists from the Federal Reserve Bank of San Francisco sort of conclude that there is standard error around the growth rate of about 1 percentage point in either direction in terms of GDP. And I think that that’s a fairly reasonable guess as to how far the numbers are off. The important thing to note is that the numbers, as flawed as they may be, are doing a good job of capturing this big shift from this slower growth in the Chinese economy and a shift in the mix again from manufacturing to services, from investment and exports to consumption, and I think that we have to look at the numbers with that in mind. They’re giving you a good approximation of the big stories that are emerging right now in China.
GDP growth rate is just another macro-economic indicator to be taken together with many others — like the employment rate, tax revenue, income growth, consumption, the state of the housing market, corporate profitability — to determine the trajectory that a country’s economy is on at any point in time.
China’s GDP growth rate says that the country is economically leveling off, maturing, diversifying, and is taking some major hits while going through a historic transition, while still growing at an incredible clip. You can see this from the street — which is the only point of view that really matters.