Is China preparing the books on economic expansion?


One of the senior officials of the Chinese government over the weekend said that the economy of his country should expect to see “at least 6.5%” of GDP growth every year between 2016 and in 2020, despite a growing body of evidence suggesting that China is in the midst of a historic economic downturn.

But whether China’s GDP numbers actually paint a clear economic picture is another question altogether.

“We propose to achieve the objective of creating a ‘moderately prosperous society” by 2020, which requires an annual economic growth of at least 6.5% over the next five years, “said Sunday Prime Chinese Minister Li Keqiang during a speech in Seoul, according to the Associated Press.

He said the economy was operating in a “reasonable range” and the government had the “confidence and ability” to meet its growth target of “about 7%” this year.

Rumors had circulated in the days and weeks preceding the announcement on Sunday that the government would eventually lower its expansion goals for the coming years following a series of disappointing economic indicators recently suggesting that the financial giant Asian beginning to cool. Exports and imports fell recent months the Chinese government announced in October that GDP increased by only 6.9% in the third quarter – which is the worst three-month period for the economy China since the world was just coming out of the global financial crisis. crisis in 2009.

But even this growth of 6.9% – the worst China has recorded more than half a decade – seemed too good to be true.

“We do not have complete confidence in the numbers, and we are surprised by the acceleration of the production of services in light of the collapse of the stock market,” wrote then a Bloomberg economics team in a note research.

The Chinese stock market has recently increased, largely due to an extraordinary government intervention. The authoritarian Chinese government has thrown a safety net after safety net to try to prevent a hard landing for the economy. Just a few weeks ago, China cut interest rates for the sixth time in less than a year.

“We continue to expect China to pull out all the stops to revive its economy in the weeks and months ahead,” Burt White, chief investment officer at LPL Financial, wrote in a research note last week. “The [People’s Bank of China] Interest rate cuts, as well as some fiscal and legislative measures in China, should help ease fears of a hard landing.”

But some analysts have speculated that the Chinese government’s intervention could also extend to the country’s economic news releases. A recent Wall Street Journal survey of 64 selected from economists found that 96% of respondents believe that China GDP estimates “not accurately reflect the state of the Chinese economy.”

“A government which exercises a heavy hand on the markets influenced / manipulates surely official statistics.” says another.

Ironically, China’s own prime minister has previously said he has little faith in the country’s GDP estimates, calling them “man-made” and unreliable, according to a leaked 2007 document obtained by WikiLeaks. . He said government data releases, particularly GDP figures, should be used “for reference only”.

“Frankly, we do not believe. It is not only that they are strangely closer to the target, which is predefined. They are produced remarkably quickly and rarely revised,” said Danny Gabay, director of Fathom Financial. Consulting, said last month in a radio interview with the BBC.

Gabay said he recalculated economic growth “based on Premier Li’s advice that GDP data is unreliable and that we should use alternative measures to assess the level of activity in China, such as electricity consumption, credit growth and other national indicators”. He said the actual growth figure is “closer to 3% not 7.3%.”

But even if the 6.5% growth target by 2020 seems a little optimistic, it is a clear acknowledgment from the Chinese government that economic expansion is no longer what it used to be. China has experienced annual double digit growth between 2003 and 2007, and the jump of 7.4% in 2014 was still significantly higher than the global average, although it was the worst year in China for more two and a half decades.

For comparison, the US economy hasn’t grown 7.4% or more in a single year since 1951. And double-digit annual growth hasn’t been seen in America since 1943.

Part of the problem is that once an economy reaches a certain size, it is simply more difficult to maintain momentum, which is probably at least partially responsible for the gradual slowdown in China. It would be unreasonable to expect the Chinese economy to grow at a double-digit pace, just as it would be unreasonable to expect the US economy to suddenly grow by 10% or 12% for an extended period.

But the Chinese government is able to influence market activity in ways that America is not, which could artificially prolong China’s still respectable levels of economic growth beyond what would happen. naturally. Most expect to continue to see relatively positive GDP numbers out of China for some time to come, although such releases could be filled with a bit of hot air.

“As an economy closely linked to international markets, China can not remain immune to the poor performance of the global economy,” said Chinese President Xi Jinping Reuters in an interview last month. “We have concerns about the Chinese economy, and we work hard to meet them.”


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