The country’s new GDP report states that the economy grew by nearly 7 per cent last year—but can we trust the figure?by George Magnus / January 22, 2018 / Leave a comment
Last week the Office for National Statistics reported that it has over several years underestimated the fall in prices in the telecommunications sector, the implications of which, including for GDP, are significant. Credit to the ONS for admitting its errors and making amends. Contrast this, though, with China’s systematic exaggeration and manicuring of its own GDP figures, which matters because of the country’s significance in the world economy and for key markets.
In the last few weeks, a handful of China’s northern provinces and cities have admitted to falsifying GDP numbers by a margin of 20 per cent or more. These include the provinces of Liaoning, Shanxi, and Inner Mongolia, and the port city of Tianjin. The admissions have come mainly from areas where mining, metals and heavy industry figure prominently, and reflect the government’s new determination to prioritise the quality of economic growth rather than the volume, and to try and hold local governments to account. However, it is very likely that the practice is more widespread than admitted, even if not always so marked, and the government’s claim that the national data are not influenced by inflated provincial figures isn’t really plausible.
The problems with the Chinese GDP figures do not stop there. The problem is not just that the data are carefully manicured, but something deeper. GDP does not even seem to be tracking activity in the economy properly in the way that one might expect. Not only have some provinces made their figures up—the figures as a whole are behaving unusually, which suggests something even more problematic.
China’s latest GDP report, produced last week, said that the economy grew by 6.8 per cent in the year to the last quarter of 2017, and 6.9 per cent for the whole year. However you slice it, and even taking some falsification into account, this seems like a remarkable accomplishment.
But it is less remarkable when you consider the following. Annualised GDP growth has been reported at between 6.6-7 per cent in every quarter for the last three years. Indeed, if you look at a chart of GDP growth following the V-shaped pattern that all nations experienced between 2009-11, you’ll see a very gentle, downward-sloping straight line to the present day. Yet this doesn’t describe adequately what happened at all.