China’s Economic Report: The Good, the Bad, and the Completely Unbelievable

Derek Scissors / October 21, 2008

China announced economic results yesterday. The results are simultaneously good, bad, and completely unbelievable.

The good: GDP growth was put at 9% in the third quarter of this year. This would please almost any country in the world at almost any time. For this particular third quarter, the U.S. would be happy with 0.9%.

The bad: 9% is down from 10% in the second quarter, itself down from 12% in 2007. There are indications growth is going to slow further. China is striving to create jobs for millions of new workers this year and next and has long held that 8% growth is needed just to keep unemployment in check. At 9% and falling, the Chinese economy has wandered into a bad neighborhood.

The unbelievable: GDP is made up of consumption, investment, the trade surplus, and the government budget deficit. China’s own numbers suggest all these parts expanded more quickly in the third quarter, but somehow GDP as a whole expanded more slowly. For Beijing, one plus one plus one doesn’t equal three.

It’s somewhat unbelievable that we already know China’s GDP. In a very large, still relatively poor country with many areas difficult to survey, 1.3 billion people, and a comparatively tiny budget, China’s National Bureau of Statistics takes only three weeks to do its job. It has only announced a few revisions in its history and every single one has been to the high side.

It’s difficult to say if China’s economy is bigger or smaller than the government claims, growing faster or slower. It’s pretty easy to say that the official version should again be taken with many grains of salt.