China has just reported first quarter GDP growth – on an annualised basis – of 6.4%. Well, OK, but we should never trouble ourselves into believing any such Chinese economic statistic. It’ll be broadly correct in terms of being in the right direction but believing in accuracy beyond the first digit would be foolish. This is not just because all such economic numbers come with varying caveats. We can’t, in detail, know what is going on out there, we can only do statistical surveys and hope we’ve not messed up too badly.
Rather, the problem here is that China is ruled by the Communist Party. Who, long having abandoned any actual communism, base their legitimacy upon competent economic management through planning. Thus results should come out according to plan – that’s where the legitimacy derives from.
So, amazingly, results turn out according to plan:[perfectpullquote align=”full” bordertop=”false” cite=”” link=”” color=”” class=”” size=””] China’s economy grew at a faster pace than expected at the start of year as benefits from government stimulus measures appeared to filter through and trade negotiations with the US entered a key stage. The world’s second biggest economy managed annualized growth of 6.4 per cent in the first quarter, the same pace of growth seen in the last three months of 2018, but below the 6.8 per cent growth seen last year. [/perfectpullquote]
If we go look at provincial GDP numbers then we know that someone, somewhere, is lying. Because totting up those provincial numbers doesn’t give the same result the Chinese government announces as the national one. The reason there is how incentives work in a planned system.
Failing to meet the centrally directed plan ruins a career. Achieving it doesn’t do much either way as you have only managed to get to where your betters at the centre determined you should be. Overachieving the plan means you might get to be one of those at that centre. Thus provincial numbers are always on the high side.
The Chinese government may be deluded in being communists but they’re not stupid. Thus they know all of this and adjust provincial numbers down before they sum them to give the national GDP result. But this of course does mean that we are already certain that the national GDP numbers are manipulated.[perfectpullquote align=”full” bordertop=”false” cite=”” link=”” color=”” class=”” size=””] China’s rate of growth is closely-watched for the potential knock-on effect on the global economy. The latest growth figures were in line with the 6.4% rate posted in the last three months of 2018. [/perfectpullquote]
Well, yes, but:[perfectpullquote align=”full” bordertop=”false” cite=”” link=”” color=”” class=”” size=””]China plans to set a lower economic growth target of 6-6.5 percent in 2019 compared with last year’s target of “around” 6.5 percent, policy sources told Reuters, as Beijing gears up to cope with higher U.S. tariffs and weakening domestic demand.[/perfectpullquote]
The target is 6 to 6.5%. Therefore the result is going to be 6 to 6.5%. That’s just the way China works.