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21-01-15, 16:43
The Really Bad News About China's Economic Slowdown And Growth Targets Miss
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The GDP growth numbers out of China for 2014 are very slightly worse than the government had hoped for and very slightly better than everyone thought they would be. This obviously has effects for the rest of the global economy. Chinese economic growth has been one of the major influences on that global economy for the past couple of decades and it’s most certainly been the major driver of the commodity cycle. However, there’s one little bit that’s rather more worrying than just the very fact of the slowdown in growth. And that’s that the reported result is less, ever so slightly less, than the number the government was expecting. Given the way these statistics are calculated that’s worrying.

The basic news of the slowdown is this:

China’s economy expanded by 7.4% in 2014, its slowest rate in a quarter-century and below the government’s growth target, Chinese authorities announced on Tuesday.

The announcement by the National Bureau of Statistics in China lays bare the challenges that Chinese policymakers confront in restructuring the country’s economy, even as they promise that this “new normal” of slowing growth is a blessing in disguise. The reported growth figure represents a drop from 7.7% growth in 2013 and China’s slowest growth since 1990, when the country grappled with inflation and international sanctions precipitated by the army’s massacre of pro-democracy protesters in Tiananmen Square. The government’s 2014 growth target was 7.5%.

And it’s this that really causes, or perhaps should cause, the disquiet:

The world’s second-largest economy grew 7.4 percent in 2014, official data showed on Tuesday, barely missing its official 7.5 percent target

Many observers have been slightly sceptical of Chinese GDP numbers for some years now. Regional GDP numbers don’t seem to quite match with other regional numbers (say, oil consumption, other proxies for economic activity) and national numbers don’t necessarily reflect the sum of all of those regional numbers either. There’s absolutely no doubt at all that the place has been getting richer but whether quite so much or quite in the manner being reported is another matter. And then there’s another group of observers (this one including myself) who have some experience of how communists report economic numbers. There’s a plan, the Communist Party is in charge of executing that plan and, amazingly, the plan is always reported to have either worked or been exceeded. Anything less would reflected badly on said Communist Party. As I’ve also been exposed to the old Soviet accounting systems I’m more sceptical than most on this point.


So, there’s that slight worry that a slowing China (or one not growing at the former breakneck pace perhaps) will also lower growth in other countries. We’re pretty sure that’s going to happen. But we’ve also got this other thing to ponder. If the Communist Party is allowing the reporting of numbers that don’t meet the plan then what’s going on with that?

Is this some sea change in the management of the numbers? They’re actually reporting the correct numbers? Or are those suspected massages of the numbers still going on but they underlying reality is so bad that they just couldn’t get up to the planned target? This is, I agree, all wild surmise. But it is a surprise that the numbers came in below target because that’s just not what we’ve come to expect in such a political system. And that could be very bad news indeed.

My latest book is “23 Things We Are Telling You About Capitalism” At Amazon or Amazon UK. A critical (highly critical) re-appraisal of Ha Joon Chang’s “23 Things They Don’t Tell You About Capitalism”.