China just announced its economic results for 2008. The headline
real GDP growth figure was 9.0 percent, featuring a drop to 6.8
percent, year-on-year, in the fourth quarter.The only thing certain
about these figures is that they are wrong.
Almost every year, all Chinese provinces report larger GDP gains
than the already-published national "average." This trend held true
for the first three quarters of 2008. Over the past decade, all
counties within a province have frequently reported larger gains
than the provincial "average." Similarly, basic macroeconomic
accounting, such as that used to calculate the components of GDP,
does not work with China's numbers. For political reasons, the PRC
knowingly measures a crucial figure for unemployment incorrectly,
understating the amount by a factor of two or three.
Beijing purports to be able to complete its annual economic
surveys in less than half the time required by the U.S., despite
having one billion more people to account for and much less in the
way of resources with which to do so. Not surprisingly, then, China
now calculates 2007 real GDP growth at 13.0 percent, having first
estimated 11.4 percent. These revisions have important implications
for assessing the 2008 data.
Official data on the economy are whatever the Communist Party
wants--close to the mark, too low, or too high. While surety is
impossible, the available evidence indicates true growth for 2008
is far lower than officially announced. Reasons for general
cynicism stem from deliberate obfuscation and internal
inconsistency in official statistics. Reason to believe official
GDP growth is greatly overstated come from old official statistics
on GDP and power consumption.
More Reasons for Cynicism
Official GDP is 30.07 trillion yuan (about $4.4 trillion). The
revised figure for 2007 was 25.73 trillion yuan. This is a nominal
growth rate of 16.9 percent and, thus, an implicit GDP deflator of
7.9 percent. The latter is considerably larger than the 5.9 percent
increase in the official consumer price index but not wildly
larger. So far, so good.
For the fourth quarter, official data imply GDP was 9.90
trillion yuan. However, this cannot be directly compared to GDP for
the fourth quarter of 2007 because there is no revision available
for the individual quarters of 2007 but only for the full year.
This has been true since China began revising data in 2005--basic
quarterly GDP cannot be verified.
Worse, the same is true for all major parts of the economy.
Investment and consumption were presumably revised for 2007 because
GDP was revised. But changes in these components were not
announced, so their fourth-quarter growth cannot be determined
either. For that matter, it is not known if official growth for the
first three quarters is still correct, for GDP or anything else.
Nor will these figures be released in systematic fashion later.
Some follow-on revisions spill out unannounced at random times;
some are never made public. Chinese economic data is permanently
On closer inspection, the picture is no better. The benchmark
measure for consumption is retail sales. This is followed with
great interest within and without China on hopes that consumption
will begin to drive the Chinese and even the world economy. In the
fourth quarter, global consumption took a heavy blow, but implied
(from incomplete revisions) growth in Chinese retail sales was over
20 percent, on-year. For 2008 as a whole, retail sales soared 21.6
percent. This is a 13-year high and considerably faster than the
(unrevised) 16.8 percent rise in 2007.
Unfortunately, such an increase is very hard to believe.
Passenger car sales added 7.3 percent in 2008, much slower than the
21.7 percent jump registered in 2007. Sales of residential real
estate plunged an unprecedented 21 percent through November. What
are Chinese consumers buying? Not imports. Import volume--the only
verifiable element of consumption--fell 8.8 percent in the fourth
While all this is disturbing, there is a more fundamental
problem. Per capita rural income was said to climb 15
percent in 2008 while per capita urban income climbed 14.5
percent. Real urban income somehow accelerated noticeably in the
fourth quarter though GDP decelerated sharply. Even if that is
true, incomes trailed sales by a good margin.
This should indicate that personal savings growth was small, as
most income went to spending. But household deposits soared 26.6
percent. Individual Chinese are said to be both spending and saving
much faster than they earn. Moreover, saving was said to sharply
accelerate while the economy slowed--as to be expected--yet retail
sales still hardly slipped at all. In this light, it is difficult
to credit rapid consumption gains.
Knockout Blow from Power
The Chinese economy's last serious slump was during the Asian
financial crisis. It is now widely accepted that official GDP
growth for 1998 and perhaps 1999 was heavily exaggerated. Evidence
was first found in power consumption growth, which dropped like a
stone in the late 1990s while GDP growth merely moderated. Last
year was 1998 all over again.
An Official Discrepancy (percent
The present boom started in 2003. The speed of GDP growth has
been catching up to power consumption growth since then.
Nonetheless, GDP growth has been below power consumption growth all
through the boom, even with the large upward revision in 2007 GDP.
In 2008, though, as the economy came under duress, GDP was suddenly
much faster than power consumption. The fourth quarter was far
starker: GDP growth was said to hold 6.8 percent even while power
demand contracted an (unweighted) 6.7 percent.
Electricity consumption cannot be magically slashed from year to
year, much less quarter to quarter. If it could, China's excessive
coal use would long since have been resolved. Based on power
consumption, a reasonable figure for 2008 annual growth is 6
percent with very little growth in the fourth quarter.
Rescuing Official Numbers, Partly
Is there anything useful to be gleaned from official statistics?
A simple way to extract some value is to consider them one quarter
ahead. In a difficult data-gathering environment, China presses
statistics personnel to reach remote areas and adjudicate regional
boasts in just three weeks after a quarter ends. Most likely,
survey information gathered ostensibly for the quarter in question
more accurately reflects the previous quarter.
This would explain much. One quarter's worth of 6.8 percent
growth should not have caused six million migrants to lose their
jobs already or pushed urban unemployment to 9.4 percent by the end
of November. But if growth had already fallen to 6.8
percent in the third quarter then, considering power consumption
and imports, fell toward zero in the fourth quarter, the spike in
unemployment is sensible. So is the increasingly frantic response
of Chinese policy-makers starting in October.
This analysis only goes so far. Official growth for the first
quarter of 2009 may better reflect the fourth quarter of 2008, but
the Party will never acknowledge it as close to zero. More tea
leaves will need to be read three months from now. Nonetheless, a
reasonable profile of 2008 growth stands at roughly 10 percent in
the first quarter, 9 percent in the second, 7 percent in the third,
and 1 percent in the fourth.
The world is going to hear endlessly that, while China is
slowing, it is still the fastest-growing economy and other
countries would do well to learn from its example. It is closer to
the truth that China has suffered more from the financial crisis
than any other country in terms of lost growth and jobs.
Among other things, China's economic difficulties have
implications for Sino-American trade relations and the Strategic
Economic Dialogue (SED), now under review by the new American
Administration. Our nation needs a mechanism like the SED, but the
U.S. needs to focus it on what are now the most salient parts of
the economic relationship, such as Chinese energy price
liberalization and access to sheltered industries for foreign
companies. Official statistics notwithstanding, China is not a
crisis-resistant model of growth and prosperity. The true picture
demonstrates continued scope for dialogue grounded in free market
Derek Scissors, Ph.D., is
Research Fellow in Asia Economic Policy in the Asian Studies Center
at the Heritage Foundation.
introduction to the State Statistical Bureau's announcement of the
2008 results reads: "In the unusual and extraordinary year of 2008,
under the correct leadership of the Central Party Committee and the
State Council, the people of the whole country carried on a
tenacious fight with one heart and one mind against the impacts
from grief natural disasters and the international financial
crisis, and the overall national Economy realized the good
developing momentum of faster growth, stabilized prices, optimized
structures and improved welfare." State Statistical Bureau,
"National Economy: Steady and Fast Growth in 2008," January 22,
2009, at http://www.stats.gov.cn/
(January 22, 2009).
Unless otherwise noted, data for the fourth
quarter and the year as a whole can be found at ibid., and
data for the first three quarters can be found at State Statistical
Bureau, "National Economy: Steady and Fast Growth in the First
Three Quarters of 2008," October 20. 2008 at http://www.stats.gov.cn/
(January 22, 2009).
The revised 2007 total can be found at, "Announcement on Final
Verified GDP Data in 2007," State Statistical Bureau, January
14, 2009, at http://www.stats.gov.cn/enGliSH/n
ewsandcomingevents/t20090116_402533093.htm (January 22,
China Monthly Statistics, Vol. 12,
was true during much of the rapid expansion since 2003, which is
essentially impossible. For last year alone, potential explanations
are inconsistent with the sustained drop in asset values.
Xinhua, "Troubled Economy Drags Down China's Power Consumption,"
November 16, 2008, at http://news.xinhuanet.com/english/2008-
11/16/content_10366291.htm (January 22, 2009); Reuters,
"Now China is Growing Slower, Can It Grow Cleaner?," Environmental
News Network, December 24, 2008, at http://www.enn.com/pollution/article/38929
(January 22, 2009); and "Four Trillion," Invest In China, January
15, 2009 at http://www.fdi.gov.cn/p
(January 22, 2009).
Agence France-Presse, "China's Economy Slows
Sharply as Global Crisis Hits," January 22, 2009, at http://www.google.com/hostednews/a
fp/article/ALeqM5jSpsftIjd0KZi1vlPUaug1uiN41A (January 22,
2009) and Reuters, "China Jobless 'Much More Grave' Than Official
Figure," December 19, 2008, at http://uk.reuters.com/article/
businessNews/idUKTRE4BI1OJ20081219 (January 22, 2009).