\u201cIt has to be there\u201d came up because I concluded that this strategy would be applied in order to calm financial markets \u2013 but also to present China as positive as possible for the whole world, especially as a host nation for the IIF-G20 conference in February in Shanghai. Therefore a strict application of behavioral economics seems to be motivated also in this context – and should not be underestimated. Psychology is needed when analyzing China.<\/p>\n
Sure, some downsizing of growth perspectives is regarded as an unavoidable precondition for future (medium- and long-term) economic progress by major parts of the Chinese people (and analysts). But the \u201cnew normal\u201d \u2013 as Chinese political leaders call the dampened output caused by moving growth from exports and investment to more consumption (services included) \u2013 should certainly not be too low. Close to 7 percent now and around 6 \u00bd percent each coming year in this decade is officially considered to be about right (in Swedish: \u201clagom\u201d which is an almost untranslatable word). The government also talks about the objective of a \u201cwell-off society by 2020\u201d, the final year of the recently started Five-Year Plan. \u201cWell-off society\u201d certainly includes a development without major social tensions \u2013 and such a performance assumes a kind of reasonable GDP growth mentioned above.<\/p>\n
Purely numerically regarded, GDP statistics published today are still in line with the objective of a well-off society (GDP growth 2015: 6.9 % compared to 2014, 7.3 % in 2014 compared to 2013; 2015q4: 6.8 % yoy, 2015 q3: 6.9 %, 2015 q2: 7.0 %, 2015 q1: 7.0 %). The annual GDP-growth rate below 7.0 percent means to me that the real development last year was weaker than this when regarding China\u2019s economic development as a whole and the major falls of commodity prices. There is an obvious risk that the officially expressed growth objective \u2013 around 6.5 percent for every year until the end of the decade – may lead to (somewhat) fudged numbers in the future as well. This seems to be the experience of the past. Hopefully, I am wrong on this point.<\/p>\n
As I wrote in my previous blog piece on China, it would increase the credibility of GDP statistics if the Chinese allowed for \u2013 or managed – more visible fluctuations and revisions of quarterly GDP growth than so far. Such a change would be natural and mean important progress.<\/p>\n
What do the figures from today\u2019s GDP statistics tell us?<\/strong><\/p>\n Obviously, all the quarterly GDP-growth numbers of 2015 are very close to each other. Consequently, the question comes up again: are the published GDP data for the past year too positive to be true? There seems to be good reason to believe so.<\/p>\n First<\/em>, published GDP-growth rates have – technically expressed year on year – (almost) a linear behavior. This seems to be unrealistic \u2013 as pointed out in previous blogs of mine. Second,<\/em> why is the accounting of GDP and its aggregates – inventories included – still such a conundrum and incomplete in official releases? Third, <\/em>also recent research shows that certain composed sets of non-GDP indicators still tell more about economic activity in China than GDP alone \u2013 despite some supposed, ongoing improvements of GDP quality in the past few years, at least according to Fernald, Hsu and Spiegel (\u201cIs China fudging its figures? Evidence from trading partner data\u201d, BOFIT Discussion Papers, 2015, No 29; these authors have constructed an index consisting of electricity consumption, rail freight, raw materials supply and retail sales, finding out that adding GDP only \u201cmodestly\u201d gives more information than the index \u2013 a conclusion which actually is very much in line with Prime Minister Li Keqiang\u2019s alternative activity index to GDP from his time as a provincial leader in Liaoning).<\/p>\n Services matter<\/strong><\/p>\n It also should be mentioned that the share of services<\/em> in relation to total production has been increasing further during 2015. Hopefully, these statistical numbers belong to the more correct ones. If this really was the case, the restructuring of the Chinese economy at least partially would be on the right track. However, considerably more high-tech production and efficiency should be achieved by industry as well.<\/p>\n In the past 10-20 years, China\u2019s economy has been benefiting a lot from the nation\u2019s optimism and forward spirit. In recent weeks – on the other hand \u2013 doubts about the future became visible, expressed by the pressure on the stock exchange and the currency CNY. Psychology matters also in China. Too many analysts still have not dealt sufficiently with this quite simple conclusion. <\/em><\/p>\n <\/p>\n Hubert Fromlet<\/em><\/strong> <\/p>\n<\/p>\n
\n<\/em>Senior Professor of International Economics, Linnaeus University
\nEditorial board<\/a><\/p>\n