China’s State Statistical Bureau (SSB) announced second-quarter real gross domestic product (GDP) growth at 7.5 percent and first-half real GDP at 7.6 percent. High or low, whether it meets the official target or not, no one should care.
GDP is a poor indicator of economic health—anywhere. It is especially poor in China, where local officials double-count or outright fabricate transactions to boost their political standing. Nor is the national-level SSB much better—its primary role as a propaganda organ is hardly kept secret.
The SSB’s characterization of components of GDP often does not make sense. Fixed investment can be larger and grow faster than retail sales, and the trade surplus can rise, but the contribution of consumption to GDP is still said to have increased.
Problems are not limited to GDP. The Consumer Price Index largely excludes housing, since housing inflation can be disturbingly high. Whenever the economy is running hot, the index is well below the GDP deflator (the implicit price level used to calculate real GDP). When the economy is slow, as now, these inflation measures manage to get much closer.
June export figures were seen as surprisingly weak by many commentators; in fact, they were used to correct exaggerated export numbers earlier this year. The auto industry was said to have a solid first half, but (typically) deliveries to vendors are reported—not final sales. Data on car registrations, a proxy for final sales, were interrupted. Crude oil imports declined, which shouldn’t happen with 7.6 percent GDP growth and a strong auto industry.
Dubious figures are so pervasive that one is frequently left to decide which lie to believe. On the SSB tally, GDP has increased more than five times since 2000. Yet the Shanghai “A” share index is about the same level now as 13 years ago. Is GDP growth highly exaggerated, or is the stock market useless?
Perhaps neither. Perhaps the problem is with listed companies: The official press recently reported that the nine largest banks account for over half of all corporate profits. Then again, why should anyone believe the banks? They just reported non-performing loans at 1 percent, with no impact from a massive lending surge during a sharp downturn in 2009.
We do think we know a few things. For instance, the return to capital spending has fallen. At the corporate level, there is consistent reporting of high debt ratios. At the provincial level, the claims have become absurd: There are provinces where fixed investment is said to exceed GDP. This can happen only when investment isn’t yielding GDP growth.
Also, ecological deterioration is harming health. The relationship between life expectancy and economic performance is multifaceted, but it is virtually impossible to sustain economic expansion when life expectancy is declining. Official Chinese data on public health, including life expectancy, are not reliable, either. But independent studies suggest that the powerful gains in life expectancy reported in the 1980s and 1990s may have stopped—or worse.
In this context, it doesn’t much matter what the SSB says happened in the first half of the year. Most likely, the Chinese economy was very sluggish, an entirely predictable result of ugly policy choices in 2008–2009. But we can’t be sure of that, just as we shouldn’t have accepted the claims of a successful Chinese response to the financial crisis.
What we can be sure of: more competition, financial deleveraging, restructuring away from heavy industry, and greater rights for farmers and workers would create an environment where China could say its economy is thriving, and it would be the truth.
