China Research

Kinas BNP för 2019 under luppen – det handlar om mer än siffror

Sammanfattning / Brief summary in Swedish

Under det sista kvartalet 2019 diskuterade jag vid flera tillfällen den relativt lättgjorda siffermässiga BNP-prognosen för 2019 och den kommande officiella målsättningen för 2020 års BNP-tillväxt (exempelvis i chinaresearch.se från den 18:e och 2:a december samt från den 28:e oktober). Utländska intressenters tillgång på de kinesiska statistiska originalkällorna ter sig fortfarande otillräcklig. Det innebär att den även i år – trots det förestående nyårsfirandet – alltför snabba publiceringen av det kinesiska BNP-utfallet för 2019 ånyo sätter sina frågetecken avseende kvalitet, omfång och noggrannhet.

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I had my doubts about the quality of Chinese GDP statistics for quite some years. Major qualitative progress still is not visible – even if some improvement may or should have taken place. One of the problems in such a context is certainly that motivated increasing credibility tends be hard to achieve when such doubts have been existing for many years.

Predictable GDP

Briefly summarized, Chinese GDP results in 2019 looked as follows (which I have been predicting several times during the past quarter in my own blog chinaresearch.se, e.g. on December 18 and 2 and on October 28):
GDP: +6.1 % yoy; GDP Q4 yoy: 6.0 %, Q4/Q3:+1,5 %).

Obviously, the Chinese remain being interested – as previously considered – in keeping “the six” in front of the decimal point. This is also – most probably – why the official GDP-growth objective for 2020 is set at “around 6 percent” as foreseen here a couples of weeks ago.

Such a goal for GDP growth seems to be ambitious but also prestigious to achieve – “prestigious” particularly since 2021 is such an important year for China’s political leaders. Therefore, I cannot imagine an official GDP growth (very slightly) below 6 % during 2020 for more than maybe one quarter or so. If necessary, the GDP-growth curve probably “has to be reversed” to the better during 2020 ahead of the 100^th anniversary day of the Communist Party in 2021 and the start of the new five-year plan – the 14^th – the same year.

Ten GDP issues to discuss further after the national-account publication

International analysis after GDP publication on January 17 this year by the National Bureau of Statistics (NBS) turned out to remain mainly on the surface. Below, ten points with an obvious need of more discussion and more profound analysis are given – unless I have overlooked encouraging developments more recently.

1. Still lagging transparency.
   The summary of the national account for 2019 is written in the old style of planned economies with many numbers. The structure of the report makes the whole information difficult and monotonous to read. The lagging transparency may be at the expense of understanding and quality of analysis.
2. Still insufficient modernization of national accounts.
   Already in previous years, I criticized that too much focus is put on the production side of national accounting which should be considered as a serious shortcoming. Also this time, I cannot find changes of GDP aggregates such as private consumption and net exports in real terms.
3. Still too even numerical developments between quarters and years.
   Almost even GDP numbers from quarter to quarter (2019 quarter on quarter, q1-q4: 1.4, 1.6, 1.4 and 1.5%) and the high predictability of annual GDP changes remain strange. So does the very early publication on January 17, also when considering the Chinese New Year celebrations.
4. Official growth objectives are regularly met.
   In my view, this phenomenon is strange as well (happened again in 2019, “6 to 6 ½%” – the outcome: 6.1%, despite structural domestic growth problems and international impediments from the trade war and the general downturn of the global economy). 6.1% may reflect a somewhat negative bias.
5. How can statistical improvements be discovered?
   As has been singled out above, it is hard to find statistical improvements between the years. More frequent information – if available – would be useful in this respect.
6. Where is a deeper analysis of structural achievements in the past year?
   Sure, some hints can be found, for example the officially high number of 236 million floating people of a population that in 2019 just exceeded 1.4 billion. I also like all the summing up of remaining problems that are mentioned in the comments on the national account for 2019 close to the end of the summary. However, what I still miss all the same is the continuous, regular and also systematic reporting on the development of these structural problems, maybe at other occasions. Certainly, one can never be sure having read everything about this topic – but this kind of difficulty is also an institutional shortcoming.
7. Still missing: a deeper discussion on future-oriented production.
   Normally, such a discussion is not part of ordinary national accounting. But the Chinese publish the growth rates for agriculture (2019:+3.1 %), industry (2019:+5.7 % but considerably more for high-tech manufacturing) and services (2019:+ 6.9 %). At least, this segment is partly taken up by Chinese authorities which may be helpful to some extent. We also learn that that the value added of the service sector now even exceeds the aggregated value of both industry and agriculture. It would be wonderful to learn even more about these developments – without setting expectations too high that this will be the case.
8. “Maintaining stability”has been achieved – what do we know about this?
   There is a lot of laudation in the introduction of the recent annual GDP report, including that stability has been maintained. What do we really know about this – and what does it really tell us? Anyway, also such an information does not really belong to national accounting. But having said “a”,…
9. More to look at: statistics on urbanization.
   Urbanization in China continues to increase. This note is part of the comments on the national accounting for 2019. The official number of urbanization is now 60.6 percent of the total population. Without having tools to check these population numbers, it may be worth-while looking regularly at the population statistics. Urbanization will be – or should be – a future main driver of private consumption.
10. For neutral observers: How much skills and/or herd mentality can be found when it comes to expectations and interpretation of specific economic statistics, for example on GDP?
    This is certainly not a topic for China’s public administration but it would be interesting to know more about China analysts’ independence or the presence (absence) of exaggerated psychological herd mentality when it comes to (statistical) forecasts or analysis. When regarding the qualitative shortcomings of Chinese statistics, non-government or private conclusions on the Chinese economy usually seem to be too uniform – running to strongly in the same direction.

Hubert Fromlet
Affiliate Professor at the School of Business and Economics, Linnaeus University
Editorial board

 

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Kina – dags för ny varning om ekonomin

Sammanfattning / Summary in Swedish

Den 2 januari i år bestämde Kinas centralbank ”People’s Bank of China (PBoC) att sänka affärsbankernas kassakrav från och med den 6 januari 2020 för åttonde gången på cirka två år. Ett sådant steg sker vanligen i syfte att stimulera ekonomin genom att den vägen öka bankernas utrymme till nya krediter.

Det finns dock tre problem i detta sammanhang. För det första kan en dylik åtgärd mycket väl tolkas som en negativ varningssignal, det vill säga att ekonomin verkligen har uppenbara tillväxtproblem (se min blogg chinaresearch.se från den 10 september och den 2 december 2019). För det andra är det inte säkert att utvidgade kreditresurser verkligen leder till en snabbare ökning av kreditefterfrågan. För det tredje kan man inte utesluta att ökad kreditgivning p g a sänkta kassakrav kan medföra en kvalitativ försämring av bankernas kreditportföljer, exempelvis genom att hålla svaga statsföretag under armarna.

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It happened again, China has formally lowered the commercial banks’ cash reserve requirement at the central bank (PBoC), also called the Reserve Requirement Ratio (RRR) – for the eighth time since the beginning of 2018 (and further room to ease more). In previous blogs, I concluded that such an intended growth-stimulating measure should be interpreted as an obvious warning signal – but by avoiding a lot of noise. I maintain this view also this time.

However, I certainly got surprised when quite a number of interpretations in the beginning of January commented that the lowered RRR could function as the starting point for a positive turnaround of the current GDP-growth cycle. The additionally added liquidity for new credits amounts to 800 billion yuan or in dollar terms worth roughly 115 USD. This means something like 0.7-0.8 % of GDP, i.e. not as much as the absolute number may indicate.

The critical points of interpreting lowered cash requirements

At least currently I do not share this growth-favoring view on the lowered RRR, for three different reasons:

First, it can be doubted whether China currently really suffers from an insufficient supply of necessary new credits.

Second, it can be assumed that the current growth problems in the Chinese economy to a high extent are caused by structural and global political reasons; ongoing acute credit reliefs play in most future structural needs and political considerations like protectionism almost no role.

Third, there is an obvious risk that the banks will give additional credits to unhealthy state-owned enterprises which would mean a further weakening of the quality of their credit portfolios. Who believes, by the way, in the accuracy of the official ratio of non-performing loans (NPL) at 1,9 % of all bank credits (September 2019), provided by the China Banking and Regulatory Commission?

For my own sake, I would like to see much more transparency also in this statistical respect. Sure, more reliable NPL numbers would mean major progress. But how and when can we find out at some point that reliability really has been rising in the past quarters or years?

GDP for 2019 to be published soon without surprises – existing pressure to perform (officially) well in 2020

In my blog chinaresearch.se from December 18 last year, I wrote that “the official objective of meeting a GDP-growth rate between 6 and 6 ½% in 2019 will certainly be met, probably very close to 6 ¼% (more exactly, my own number is 6.2 %). As regards 2020, an official objective for GDP like “around 6%” or “6% exactly” can be expected. This would mean only a very slight downsizing from 2019.

But I cannot imagine any lower goal numbers than these two at this very moment – and I cannot imagine more than one quarter with an official GDP growth (very slightly) below 6 % – and if necessary, the GDP-growth curve has to be reversed to the better during 2020 ahead of the 100^th anniversary day of the Communist Party in 2021 and the start of the new five-year plan – the 14^th – the same year. Do not miss the publication of the preliminary GDP results for 2019 as soon as on January 17!

Only two days earlier, the U.S-China Phase One trade agreement is intended to be signed in the U.S. However, doubts remain, also what concerns future interpretations by the U.S. administration to what extent China is sticking to the agreement.

Later on, a Phase Two deal will probably become even more complicated than the Phase One agreement text. Many sensitive issues still have to be taken up and included in future agreements between the U.S. and China – among them in Phase Two the enormous Chinese government subsidies to state-owned enterprises and FDI restrictions for foreigners in China.

I will be back before the Lunar celebrations and the year of the Rat will start on January 25.

Hubert Fromlet
Affiliate Professor at the School of Business and Economics, Linnaeus University
Editorial board

 

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Kinas (officiella) ekonomi 2020 – relativt lätt att prognostisera

Vanligtvis presenteras prognoser så här års med tillägget att bedömningar för det kommande året denna gång ter sig speciellt svåra. Åtminstone vad gäller den ekonomiska politiken och BNP-utfallet för 2020 verkar osäkerheten emellertid begränsad avseende Kina. Möjligen kommer det officiella tillväxtmålet för 2020 att sänkas något från 6-6 ½% i år till 6% exakt eller cirka 6%. Hur som helst, inför starten av den nya 5-årsplanen och firandet av kommunistpartiets 100 års jubileum år 2021 har det officiella Kina ej råd med en synlig tillväxtförsvagning.

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Usually, economists add to their outlook for the coming year that predictability this time is more limited than ever. In the case of China, however, such a kind of precautionary reservation for 2020 seems to be superfluous, at least for the official China. Reality, however, may look somewhat different, i.e. GDP growth may come in (slightly) lower than official national accounting will tell us. Who knows?

Very slight downward revision for intended GDP growth in 2020

2021 will be a very important year for the Communist Party of China with its 100 ^th anniversary of its founding and the first year of the new 5-year plan. For these important reasons, the political leadership of China has to deliver a GDP-growth rate around 6% in both 2019 and 2020.

The official objective of meeting a GDP-growth rate between 6 and 6 ½% in 2019 will certainly be met, probably very close to 6 ¼% (more exactly, my own number is 6.2 %). As regards 2020, an official objective for GDP like “around 6%” or “6% exactly” can be expected. This would mean only a very slight downsizing from 2019. But I cannot imagine any lower goal numbers than these two at this very moment.

Economic policy – (somewhat) more driven by demand-side policy

Chinese officials and economists also frequently point at the fact that the quality of growth is the main issue rather than the pure numbers. This is certainly right in theory and according to economic textbooks. However, it is hard to calculate how the distribution of annual GDP growth between more short-term sighted demand-side policy and more long-term driven supply-side policy really looks like. More transparency in this respect would be good for China as well.

Despite the ambition to conduct a prudent monetary policy, further cuts of the minimum lending rate (MLR) at the People’s Bank of China seem to be on the cards in the next year. In my view, cuts of the MLR tend to be the best signal by growth-worrying political leaders in China.

Anyway, the Chinese clearly want to apply supply-side policy in 2020 as well. The question is rather to what extent. Maybe (somewhat) less than in 2019 – but it still will be there, pushed also by Donald Trump according to the words of Phase One of Trade Negotiations between the U.S. and China (as mentioned in my previous blog from December 14).

Nota bene: For China very necessary parts of supply-side policy are embedded in the trade deal.

Hubert Fromlet
Affiliate Professor at the School of Business and Economics, Linnaeus University
Editorial board

 

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