China’s Growth Likely Overstated; Actual Figures Hard to Determine

China released its first quarter Gross Domestic Product (GDP) tabulations in early April. The figure it quoted, seven percent, represented the worst rate of growth for the Asian economic power in six years. This caused many to fear a worsening slowdown of the Chinese economy. Yet, more bad news was still to come.

China released its first quarter Gross Domestic Product (GDP) tabulations in early April. The figure it quoted, seven percent, represented the worst rate of growth for the Asian economic power in six years. This caused many to fear a worsening slowdown of the Chinese economy. Yet, more bad news was still to come.

According to a report in the Wall Street Journal, Citibank believes this number is overstated. Citibank concluded that the actual growth likely capped at closer to six percent. However, several other firms put the number even lower. Capital Economics estimates growth at 4.9%, while Lombard Street has it at just 3.8%.

Unfortunately, coming up with a more accurate calculation has been difficult for any foreign entity to do. For years, economists have noted that the figures produced by China appear suspiciously even, with very few sharp movements as seen in typical economies around the world. Furthermore, the methods by which Chinese economic officials come by their numbers appear suspect, and nobody has a clear explanation from the Chinese government as to how it accounts for inflation in its GDP estimates.

Additionally, the numbers and the facts do not seem to calculate. For example, industrial production (a data point that is harder to mask and often used by economists as a proxy for GDP) only increased by 5.6%, making overall GDP growth of seven percent highly unlikely. Moreover, the industrial production figure represented the lowest rate of growth for that sector of the economy since 2008. Other data points, like electrical consumption, investments, industrial profits, real estate, and others, also show a significant reduction in growth.

Of course, China’s manipulation of its GDP figures, if it has truly occurred, would not be unique among emerging nations. However, given the relative size of its economy, and its effect on other economies both in its region and around the world, such practices do raise some concerns. These concerns relate largely to the fact that the inaccuracies do not appear to be the result of lack of data, as in other developing nations like India, but due to intentional manipulation.

The result is a massive, powerful, and highly influential economy skewing the appearance of its economic growth for political gain, while misleading the rest of the world’s investors about its faltering growth. While China’s economy may be “too big to fail” in some aspects, it could certainly tear down huge numbers of investors as well as neighboring nations’ economies should it experience a prolonged recession or depression brought about by financial policies founded on intentional misinformation.