Almost certainly next week we will have the GDP growth rate for 2023 announced by China’s National Bureau of Statistics. The estimate from the International Monetary Funds, reflecting many other estimates by financial and other organizations is that the reported growth rate will be 5.4%. Caixin did a survey of economists at 16 domestic and foreign institutions and averaged their estimates at 5.3%. All were somewhere around five, but not under five. Can’t start the number with a 4. The reported GDP growth rate for 2022 3%.
And then came a report from the Research group Rhodium this week, which said that the actual GDP growth rate is estimated at 1.5%. Here is how Rhodium phrased it: “Despite clear evidence that it was slowed down by unexpected economic headwinds this year, China will almost certainly claim to have hit its “around 5%” GDP growth target for 2023. The realities of a still-shrinking property sector, limited consumer spending, falling trade surplus, and battered local government finances mean that actual growth in 2023 was more like 1.5%.”
For most major economies, GDP growth rate is a number which is calculated with a high degree of transparency, and is considered to be generally reliable. China has the second largest economy in the world, but the process of determining GDP is not transparent at all. Over the years there have been occasions when the GDP growth rate reported by all the provinces of China added up to more than the national GDP growth rate. This is just one small example pointing to the fact that we really have no idea what the true numbers are. And anecdotally, and atmospherically, it seems highly unlikely that China’s economy grew at 5% in 2023. Although, of course, it always depends on what you are including or excluding from the calculation.
What is the value of the number reported by the Chinese government for GDP growth, if there is a reasonable likelihood that the number is more of a political decision than a reflection of economic factors. The answer given generally is that, while the GDP percentage is questionable, the general trend has a value in determining the status and direction of the Chinese economy. That might be true, but if you compound the percentages, and if there is a fundamental flaw at the heart of the numbers, you end up over the years with a significantly skewed estimate on the actual size of the Chinese economy.
So next week we will have a number. We will see who is going to accept it, who is going to question it. We of course have no better number to provide. All we have is a sense of how things went over 2023, with the hope of a post-Covid rebound that never really emerged, and almost no bright spots in the economic landscape except for car exports. The GDP growth number is the top line number that everyone always refers to for any economy and it would be nice if there was no sense of uncertainty about it. Our bet, for what it’s worth, is that the number that will be announced is 5.2%. Whatever that means. In the meantime have a great weekend.