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    “Three problems with China's GDP. Why is it worse reflects reality” – Michael Pettis

    2019-03-12

    Analysts increasingly doubt, that data on high growth of Chinese GDP reflect the real state of the economy. on they There are at least three reasons, which it causes lower roz'yasniv Michael Pettis, known American economist, professor Finance at Beijing University, older scientific employee Asian applications Center Carnegie at Beijing. For 1980-90x years. Pettis worked at Investbank, at so including JP Morgan and Bear Stearns, but then head group by increasing markets at bank Credit Suisse First Boston.

    The Chinese economy is not growing at 6,5% year. Probably, real growth is not even half that figure. true, such a pessimistic assessment not all agree, but the debate about, what is really happening in the Chinese economy and how much can be taken for granted official GDP data, conducted regularly.

    These doubts arise because, that official data in China are increasingly at odds with economic realities. National Bureau of Statistics of China said, economic growth in each quarter of last year exceeded 6,5%. This figure is much smaller than the huge numbers, China showed that in the last forty years, but still can not infect.

    However, in conversations with employers, economists or analysts find out, it is difficult to find at least one sector of the Chinese economy, which grew rapidly be decent. Almost all parties complain of poor conditions, increase in the number of bankruptcies, stock market decline, pessimistic expectations. During those eighteen years, I live in China, I have never seen such a strong dissatisfaction with the economic situation.

    Anxiety and mood infiltrated among students. Yesterday a student said to me,, that last semester enrollment has increased dramatically, Experiencing problems with money and therefore placed at university Online classified ads for phones, computers, clothes and more. Over the past year the number of such ads has increased dramatically - talking about it all. In other universities the situation is similar. Apparently, families with low and middle incomes now send her children much less money, than before.

    This picture - this is not the, What does the economy, is growing at 6,5% year. Then the mean growth rate of Chinese GDP? It turns out, that the analysis of official data on Chinese GDP must consider three very different problems, which in any case should not be confused.

    Measuring GDP?

    The first problem concerns the very essence of GDP and is relevant not only to China, but also to all other economies, especially the most developed. In countries, where the industry, actively apply new technologies, value produced consistently underestimated due to the impossibility of proper accounting.

    generally believed, GDP measures the real economic value creation. For example, if the year GDP grew by 5%, it means, that the amount of wealth, produced this year, on 5% exceeds last year. In other words, suggests, that country's ability to service debt increased by 5% - essentially, This is the same.

    But really measure the economic value created by the country impossible, as GDP - is only an estimate of, trying to measure. In calculating GDP, economists have agreed to take into account certain data, The final amount is taken as the total GDP, that the cost of everything, that makes this country.

    Of course, captured not all activities, creating value. Example, free if you teach someone a foreign language, you increase the welfare of the country, but GDP. If he pays you, GDP increases by the amount of money, you get, even though, you promote the welfare of the country regardless of, He pays you or not. On the other hand, not any activity, taken into account in the calculation of GDP, create value: useless bridge, leading to nowhere, GDP increases smoothly as, how cities, who really need.

    Of course, any rough economic indicator is not without flaws, but there is a serious question: if so imperfect GDP, which benefit from it? Is he capable of displaying the entire cost, created by varying economies? This problem is everywhere, but in China it, perhaps, is more acute because a huge amount of investment in non-productive sectors, are taken into account in the calculation of GDP, but do not increase the welfare of the country or, or its ability to pay debts.

    How accurate data on China's GDP?

    The second problem is the fact, how carefully and conscientiously employees of National Bureau of Statistics calculated parameters, taken into account in determining the GDP. Do not allow them in the data collection system errors, affecting the final result (and, as one might expect, change its upward)? Or, perhaps, they just lie, trying to please the boss?

    I am more than confident, that data are distorted China's economy to smooth sharp fluctuations. In another National Bureau of Statistics, probably, adhered to generally accepted rules - in a pinch, until recently - and had expected GDP more or less. Although it is not certainty: as noted above, difficult to find at least one sector of the Chinese economy, which develops well, as one would expect from the country, whose GDP is growing at 6,5%. Moreover, in recent years become increasingly difficult to reconcile the figures of GDP growth with other economic indicators (As an example I shall refer to Article economists Bob Barbera and Inha Hu, which are based on results of a study of satellite images).

    More, people, which I treat with great respect, such as Anne Stevenson-Yang of J Capital, strongly questioned the reliability of official data say, that the real growth of the Chinese economy is much lower, largely because, that at some stage of gathering information falsified information. Nevertheless, if there is a significant difference between, that statistics must measure, and the, they really measure, very difficult to predict, how long they will continue to inflate the numbers and when finally will be a correction.

    China's GDP - welfare or political will?

    The third problem concerns the few countries (and China is now prime example), but on whether it becomes less serious. So it can formulate: whether GDP serves as the indicator of economic activity? In China, the official GDP does not reflect the performance of the economy; rather it shows, how quickly, according to Beijing, You can carry out the necessary adjustment of the economy. This is because, GDP in China means something else, than most other major economies.

    In most countries, GDP is a measure of output, albeit imprecise. In other words, the economy is their turn and after a certain period of time statistics measure the parameters, that economists have decided to include in the relevant calculations, and give the result as a report on GDP growth during this period.

    China is not so. Here GDP growth rates are determined in advance, and to achieve them different actors, including local authorities, carry out economic activities, which, usually, financed by borrowing. While China is able to service the debt and may postpone writing off unproductive assets, Government can achieve any growth rate, which wants.

    But this approach changes the very meaning of GDP. In China, official data show it is not so much economic growth, as political intentions. Any system known theorist, that input data say nothing about system performance. So when analysts talk about the state of the Chinese economy on the basis of official data on GDP, in terms of systems theory, they make an elementary mistake - input data systems can not be judged on its performance, but only about the goals of operators.

    In practical terms, this means, that after Beijing sets benchmarks, local authorities should stimulate economic activity, to achieve the set goals, - for this they can take so much money, as necessary. If it brought results, there were problems, although in this case we would have to deal with a strange coincidence (or incredible talent forecasting) between the scale of productive activity and set goals. However, probably, GDP growth would always exceed previously set goals, what, properly, happened ten years ago.

    But if economic activity is counterproductive, the, Only following two conditions, China, unlike other countries can afford to pre-define, what is the GDP growth. Firstly, should not be hard budget constraints - then economic actors can engage the inefficiency of years. Per-second, bad debts, accumulated, should not be written off. When both conditions are met, as it happens in China, in the presence of sufficient capacity to service debt can set and achieve any goals for GDP growth.

    However, should note that, such purposes do not say anything about the real economic growth of the country, GDP, which should reflect (albeit imperfect exactly). When GDP growth is opening, not result, He no longer reflect the state of the economy.

    Conclusions

    The debate about economic growth in China and their relation to GDP figures far from complete. While experts agree, that the Chinese economy is not as strong, as one might think based on data on GDP. suspect, that few leading economists rather short-sighted (and such, oddly enough, no longer in China, and beyond), to still believe, the Chinese economy is really strong so, as can be expected from the country, whose GDP grew by 6,5% last year and grow by 6% in this.

    The problems of the Chinese economy are large and cause considerable anxiety in leadership. So do not need much ingenuity, to understand, that the official GDP figures just do not reflect that, what, we think, they should reflect. However, some economists have not understood and often refuse to adjust their approaches in view of the above problems.

    Recently I came across a report, where the author talked about, China came in first place in the world in terms of GDP, calculated at purchasing power parity (PKS). But anyone, who belongs to Chinese statistics any way critical, will not even try to list Chinese GDP PPP - this does not make sense. I do not mean, that the data on China's GDP, adjusted for PPP, less accurate, than data for other countries, not at all. But they are meaningless, so that any value, calculated on the basis of official data on China's GDP, can have any value only to the extent, in which the data related to the real economy - or so, that expresses GDP. But they believe not all.

    The bottom line is, if the official figures on China's GDP at odds with the real state of its economy, then this difference can be expressed in three completely different ways. Analysts often confuse these three forms. Example, I said many times, that if China's GDP is calculated in the same way, in other countries, then the growth rate would be less than half the official figures.

    All this does not mean, I think, Beijing falsify data, - no, I do not think so. In my opinion, main problem is, that the official Chinese GDP - is the input data for the economic system, and not the result of its operations. In order, so you can compare China with other countries in terms of GDP, These need to adjust the input data given more significant results - such as, the volume of bad debts in the same period, which should be written off, but in reality in China are not blamed. If we subtract them from the nominal GDP growth rate of China, then adjusted figures, probably, are much more similar to what, what economists call GDP.

     

    “Leviafan”

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