Montage of Chinese currency notes

China’s GDP: A Growing Mystery

Jul 16, 2013 • Demand, Supply, and Markets, Developing Economies, Economic Debates, Economic Growth, Government, International Trade and Finance, Macroeconomic Measurement • 299 Views    No Comments

In China, imagine one half million hairdressers with their own small businesses who have no bookkeeping records. Think of another 500,000 with books that conceal revenue from the local tax collector.

During 2004, with an Economic Census to complete, the Chinese government sent an army of statisticians into the street. Looking closely at legions of hairdressers and other small services businesses, they concluded that they had underestimated the size of their economy. Over night it became 16.8% larger.

On the other hand, hoping for promotion, some ambitious local officials inflate the GDP numbers they submit. In one accuracy check, government statisticians uncovered a fourfold exaggeration that elevated the production of 71 firms in a southern province from 222 billion yuan to 8.51 billion.

China's GDP Growth Questions

If, to this uncertainty, you add a huge and increasingly complex economy and secretive statisticians, it makes sense to question the 7.5% growth that China just reported. Even China’s premier has been somewhat skeptical. In a 2007 Wikileaks diplomatic cable, when he was a Communist party official, Li Keqiang said GDP stats are “man-made.” Instead, he prefers to use electricity consumption, rail cargo volume and bank lending as his growth yardsticks.

Chinese GDP Questions

Still though, China watchers like WSJ‘s Tom Orlik say the numbers are becoming more reliable.

Sources and resources: To start to grasp the evolution of China’s statistical accuracy, I recommend reading this Amazon excerpt of Understanding China’s Economic Indicators  from journalist Tom Orlik and this academic perspective from Professor Harry Wu. More difficult to access unless you have a subscription, WSJ articles, here, here and here provide enlightening background, current reporting and were the source of my graphs.

 

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