China Research

China’s GDP increased by 6.8 percent in the fourth quarter of 2016 compared to one year earlier and by 6.7 percent in 2016 as a whole compared to 2015. These results are more or less exactly in line with my own and average market expectations – and not bad if close to reality. This we don’t know very well. But we do know that China’s political leadership nowadays preferably wants to focus on the quality of economic growth and not on the numbers per se; in this context, one can see a continuous increasing production share of the service sector, now almost 52 percent of GDP. Many analysts, however, still do not know how to apply this distinction of growth quality – and obviously not on this publication day either. It should also be noted that the National Bureau of Statistics (NBS) speaks about “a complicated domestic and international environment”, i.e. in China, too.

Compared to the GDP accounting of the National Bureau of Statistics of China (NBS) itself one year ago, I hardly see major qualitative improvements. This may be the wrong conclusion when considering all the positive comments on this issue that are made by the Chinese and certain foreigners. Still, however, more progress seems to be necessary as regards GDP calculations from the production side. GDP calculations from the expenditure side – which we are mostly used to in our part of the world – are still insufficient as well, only being published annually and only in nominal prices; and quarterly GDP numbers are only calculated from the production side in volume terms (surf on IMF SDDS, China about the different calculation types – hopefully updated).

It should be kept in mind that the above-mentioned forecasting accuracy is not the result of special forecasting skills. It is caused because of the still existing phenomenon that GDP outcomes in China should – more or less – meet or have to meet official objectives and forecasts. Consequently, paying attention to what officials say about the GDP future usually serves as a good guidance.

One may even conclude that more and stronger statistical fluctuations of Chinese GDP growth potentially may contribute to better credibility of Chinese statistics. One specific problem remains all the same: There is a risk that statistical improvements at some point – when they finally happen – will not be acknowledged on time even if it seems to be justified.

Finally, it should be reminded that president Xi Jinping a couple of weeks ago told economic decision makers of the Communist Party that he is ready to abandon the current growth objective of 6 ½ percent if reaching this growth number should add too much to debt and stability problems. Thus, we have got another GDP-growth issue to observe in the future: the development of economic and financial risks (as much as possible). It makes sense!

Hubert Fromlet
Affiliate Professor at the School of Business and Economics, Linnaeus University
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In the past, I have been writing a lot of lines on the insufficient quality of Chinese statistics – on this page, too. Today I wonder how the state of the Chinese economy really looks like. Could it be worse than most people think?

It is hard to tell since statistical transparency does not belong to China’s major strengths. But one has to think twice when analyzing current economic statistics. Certain numbers have come down quite visibly in 2016 and even much more sharply since, for example, the strong stimulation year of 2010. Some numbers can show developments more clearly (changes in %):

There is now doubt: The Chinese economy has been slowing down substantially in the past few years. This is even confirmed by official GDP-growth statistics. Some indicators show also a rapid deceleration of important growth indicators since last year – but without affecting GDP-growth rates very much. This may be another conundrum.

If the slowdown of Chinese GDP growth cannot be stopped soon, this could be bad news for Chinese economic reform policy and the main political leaders as well – particularly since the major part of the Standing Committee has to be replaced next fall (but most probably not the Chairman and the Prime Minister).

Conclusion: Politics will become more important during next year in China as well – not only initiated by the next president of the United States but also originated in China. This should be kept in mind!

Hubert Fromlet
Senior Professor of International Economics, Linnaeus University
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