There’s no question that, over the past 40 years, China has undergone one of the most consequential economic transformations in global history, with hundreds of millions of people rising out of abject poverty. But is the Chinese economy currently growing as fast as the official data suggest? That’s a much trickier question to answer.
As Keith Bradsher, Shanghai bureau chief of the New York Times, recently noted, “Measuring the size and health of the world’s second-largest economy can be difficult at best. Its official figures have become implausibly smooth and steady, even as other countries post results with plenty of peaks and valleys. Officials in far-flung regions are admitting their numbers are wrong. And outside experts crunching the data have come up with different — and usually weaker — results.”
On January 18th, Beijing announced that Chinese economic growth had increased from 6.7 percent in 2016 to 6.9 percent in 2017, with fourth-quarter growth coming in at 6.8 percent.
Are those numbers accurate? Mostly accurate? Not even close to accurate?
Here’s Bradsher, writing the same day the numbers came out:
China’s annual growth figures have long been quite steady. Other large countries have had somewhat steadier growth than usual in the last several years. But China’s quarterly growth figures are suspiciously smooth, unlike quarterly growth in many other countries.
Politics are a major reason. Local officials often face pressure to meet targets from the central government. At the first hint of economic weakness, they have tended to step up spending to stabilize economic output.
Increasingly, China is owning up to data shortcomings, particularly in provincial data. The region of Inner Mongolia revealed this month that two-fifths of the industrial production it reported for 2016 did not exist. A year ago, Liaoning Province in northeastern China revealed that local governments had padded their economic growth statistics from 2011 to 2014.
Tianjin, a sprawling metropolis, briefly posted on one of its official websites last week that previous data had been inflated. The post was quickly deleted.
Ning Jizhe, the director of the National Bureau of Statistics, said at a news conference on Thursday afternoon in Beijing that there had long been discrepancies between provincial and national data, but that the gap had been narrowing. “Local data will not influence the reliability of national statistics data,” he said.
It can work the other way, too: Some economists cite evidence that China also understates its growth during booms to smooth its results.
Regardless of whether recent Chinese economic growth was weaker or stronger than the national figures indicate, a significant amount of that growth was fueled by debt.
“Credit growth,” the International Monetary Fund reported in December, “has outpaced GDP growth, leading to a large credit overhang. The credit-to-GDP ratio is now about 25 percent above the long-term trend, very high by international standards and consistent with a high probability of financial distress.”
As China struggles to deal with an ocean of nonperforming loans (NPLs), many analysts fear it could be headed for some type of crisis.
In mid-January, for example, Benn Steil and Benjamin Della Rocca of the Council on Foreign Relations argued that, not only had Chinese Communist Party boss Xi Jinping “abandoned any pretense of concern with NPLs,” but China also was “shoveling new loans to companies with the least ability to pay them back.”
In November, Peking University finance professor Michael Pettis contended that China was “unlikely to suffer a financial crisis,” because its government could “restructure banking-sector liabilities at will.” The real danger, Pettis wrote, is that China’s debt burden would become so large that it generated “uncertainty about allocating future debt-servicing costs,” and thereby impeded economic growth.
Reducing debt levels — or “deleveraging” — is thus essential to making Chinese growth more sustainable. “The only healthy way to do so,” according to Pettis, “is first, to force local governments to liquidate assets and assign part of the proceeds to debt reduction, and second, to wean China off its dependence on excessive investment by transferring wealth from local governments to households, so they can consume more.”