Getting ready to scrutinize China’s unbelievably good numbers
WSJ on China’s unbelievable track record since 1978:
It now looks certain that China’s economy has expanded by 10% or more in real terms for four straight years. The government has issued a preliminary estimate of 10.5% for economic growth in 2006. The National Bureau of Statistics is scheduled to release a more detailed account of the nation’s economic performance for the year tomorrow, but isn’t likely to revise that figure substantially.
If current growth rates continue, China could overtake Germany as the world’s third-largest national economy, with annual output of more than $3 trillion, as early as 2008. China passed the $2 trillion mark in 2005, when it replaced the United Kingdom as the fourth-largest economy. By comparison, the world’s advanced economies together probably grew about 3% last year.
Many observers see in China the 21st-century counterpart to the emergence of the U.S. and Germany as industrial powers in the early part of the 20th century, and of Japan in the latter half. By shifting millions of people out of agriculture and into manufacturing, and by investing to build the infrastructure of an advanced economy, all of those countries, at different times, managed long periods of sustained, fast growth…
“China is bursting at the seams. It is growing much faster than any emerging economy has, ever,” said Carl Weinberg…China’s four-year run could even be considered unexceptional for the country: Its economy has grown an average of about 9.8% a year since it began market reforms in 1978.
We agree with many of the accolades that have been heaped upon China’s economic development policies, which have enabled a hundred million people or more to join the global middle class. However, China cooked its books a bit in 2006 to puff up the size of its economy (admittedly using some methods approved in the developing-economy world). Let’s just wait and see what adjustments, if any, are made to China’s GDP methodology.
The longer a string of unbroken, steady increases in earnings goes on, as we have seen in publicly traded US companies, the greater the pressure to continue the unbroken winning streak. We have seen the legacy of such pressure time and again play out unattractively for the shareholders of very large American companies. Maybe it will all be different this time.
January 24th, 2007 at 2:27 pm
Be careful with any comment remotely similar to “this time its different.” Trees don’t grow to the sky. Never have; never will.
I’d love to see a correlation study between China’s announced economic figures and direct foreign investment. I suspect those numbers play like the stock market. The better the news, the more people wanting to buy the stock. That was the whole point of Enron – keep the good news (earnings growth) going so people would keep buying the stock.
January 25th, 2007 at 10:01 am
Maybe it will all be different this time.
I take that as irony.
Per bps, I wonder about the motivation for China’s steady torrent of economic hype. Maybe it’s a legitimate expression of national pride. Maybe it’s a barefaced swindle. Maybe it’s a swindle with a purpose: to unload bad debts and unprofitable enterprises onto foreign investors.
January 26th, 2007 at 5:34 am
I think you’re right on all counts gs. A recent report said that as China’s “peasants” moved from the farms to the cities the urban population was growing 10-20% faster than job creation. That’s a staggering number considering China’s GDP growth – it’s also a lot of unemployment. Other reports cite 80,000+ “mass disturbances” (read riots against the government) for a host of reasons, commonly cited is the forcible taking of land farmed by the “peasants” with no compensation and then given to the well-connected for “economic development projects.” Then there’s the on-going issue of non-performing loans in the largely bankrupt state-owned banks.
I suspect a lot if not all of China’s economic growth is real, by that I mean real economic activity is taking place. What I don’t know is how efficient that activity is. I believe a lot of the economic activity is being used to prop up non-performing loans and other structural problems left over from communism and cultural practices at odds with sound economic decisions. The rest is being used to try and employee hundreds of million of people moving in the cities.
At the end of the day, I think the goal of the Chinese government is the same as any government: stability and survival of its own regime.
January 26th, 2007 at 11:07 pm
I am pretty sure none of you guys have any solid economics background. The GDP of China is actually in general thought to be purposely understated to ease out the anger of american politicians.
The civilization of China has spanned over several thousand years,and remarkably in most of the time stands as the top one among nations. The revival of its economy that we have witnessed over the last several decades just simply prove how strenuous this nation essentially is.