What Is GDP In China?

Analysts are increasingly skeptical that China’s very high reported GDP growth rate provides a meaningful picture of the economy’s health. There are, however, at least three very different ways that reported GDP can fail to reflect the underlying economy.

The Chinese economy is not growing at 6.5 percent. It is probably growing by less than half of that. Not everyone agrees that the rate is that low, of course, but there is nonetheless a running debate about what is really happening in the Chinese economy and whether or not the country’s reported GDP growth is accurate.

The reason for the widespread skepticism is the disconnect between the official data and perceptions on the ground. According to the National Bureau of Statistics, China’s economic growth in every quarter last year exceeded 6.5 percent. While that is much lower than the heady growth rates China has experienced for most of the past forty years, it is still, by most measures, a very brisk rate of growth.

And yet, when you speak to Chinese businesses, economists, or analysts, it is hard to find any economic sector enjoying decent growth. Almost everyone is complaining bitterly about terribly difficult conditions, rising bankruptcies, a collapsing stock market, and dashed expectations. In my eighteen years in China, I have never seen this level of financial worry and unhappiness.

These concerns have even breached academia. One of my students told me yesterday that there was a huge increase last semester on the university website in the number of students selling their belongings because they are hard up for cash. They are selling their phones, computers, clothing, and lots of other possessions. He said the amount of selling is noticeably higher than last year, enough so that everyone is talking about it. And he indicated that this is apparently happening at other schools too. It seems that the poor and middle-class kids are squeezed for cash because they are getting much less money from home than they have in the past.

This isn’t what you’d expect to hear from an economy growing at more than 6.5 percent. So what does it mean exactly to say that China’s GDP is growing at that pace? It turns out that there are three completely different sets of problems that affect how China’s GDP growth statistics should be interpreted. Analysts must keep these three problems straight and make sure that they don’t confuse matters by conflating these separate issues.

WHAT DOES GDP MEASURE?

The first set of problems relates to the meaning of GDP itself. This challenge affects not just China but the rest of the world as well. This is especially true for advanced economies with substantial technology and service sectors that employ technology whose value may be substantially understated by an inability to count it accurately.

GDP is typically assumed to measure the creation of real economic value. If a country’s GDP rises by 5 percent over the course of a year, for example, this is interpreted to mean that the amount of wealth the country produced in the last year is 5 percent greater than in the previous year. In other words, it would be assumed that the country’s ability to service debt would have increased by 5 percent, which means roughly the same thing.

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