China’s growth rate is still on the right track, but it is aimed at the wrong goal


A preliminary estimate of China’s economic growth in 2017 released on Thursday is perhaps the least surprising announcement of this year, exactly the 6.9% expected. What follows is a little story about the false positives of statistics in different regions, but despite some surprising dimensions of these revelations, the number of titles remains unaffected.

Part of the reason is that China’s economy is huge and regional differences have little effect on the total, but it also illustrates another issue with China’s data, which is that China’s economic data often differs from those of other economies. No other country has routinely achieved its growth targets so little has changed the previously published figures. In fact, most other countries have no growth goals, except for possible conceptual aspirations. For example, Britain tends to focus on how growth measures long-term trends. At present, the U.S. goal for 2018 is 4%. This is a controversy to judge the current government’s success. Only China has a five-year plan that sets strict growth targets and always meets or exceeds this goal.

Are these numbers accurate?

The simple answer to the question “Is the number accurate?” Despite all the doubts about the reliability of methods and inputs, this led to the spread of different indices, most notably the “Li Keqiang” index, which is used to estimate China’s economic activity. There is a way to measure the amount of light coming from urban areas, even using satellite photos, instead of estimating the actual value to verify the perceived trend.

More importantly, the lack of any retroactive adjustment – something that is commonplace elsewhere – has caused people to suspect that these numbers are not merely a measure of real economic activity, such as showing competence to grateful people and skepticism about the world of investors confidence. However, even though these figures are not entirely credible, few doubt that the general direction of long-term performance will gradually decrease to a more modest but still impressive level.

However, another nagging question facing Chinese observers is “If the growth rate is correct?” Under such circumstances, the question may turn to what it may mean: a revival of China, a revisionist who may be revolutionary China is reshaping the world order itself and so on. But even here there are many questions. Every area has its own difficulties and every area has its own bias. The most important is the actual measure of GDP. For example, Michael Pettis has long argued that GDP does not reflect China’s productivity and living standards, but a feedback mechanism for government policies.

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The reasons are not complicated, but often overlooked, of course, based on many articles on China’s growth rate. It remains a barometer of all economic activity useful in a market economy for all GDP-indexed issues, but given the high proportion of economic activity in a country-led economy and country-led investment , Only record the rhythm of the country’s dominant leverage. If growth looks a bit weaker, credit conditions will be relaxed and new investments will be placed. Whether this investment will generate economic returns, of course, this figure is not in the GDP data. On the contrary, this is just another goal, another negative predictive defiance. If the goal is missed, it will only reveal that someone has screwed up somewhere.

Growth is not driving

Behind all these discussions, I often feel metaphors are failures. Driven by innovation and private needs, economic growth in a market economy is organic. Measuring growth rate is like taking a temperature and doing a certain degree of reduction assessment of different inputs, however, revealing important trends in overall productivity. Some, but not all, economists think they need stimulus to eliminate the volatility of the business cycle or to correct some short-term difficulties, but even so, growth is a problem that can not be controlled by kids. The best understanding of the overall economy is an indeterminate sailing ship in the oceans. The government can adjust the voyage and adjust the course according to the actual situation, but can not switch the engine fundamentally and ignore the weather completely.

On the contrary, China is pushing the economy as planned. In this case, the growth rate is only the speed at which the government sets the engine. Although some people think that a ship will always defeat a sailing ship, the problem is that these are merely metaphors and say little about long-term productivity and the effective allocation of capital. In the case of China, the panic of sharp increases in debt and misallocation of capital has been ringing for several years, and according to Bloomberg, state-owned enterprises and infrastructure investment have now recorded higher levels of investment in fixed assets. The 2009 stimulus policy, the latest growth rate should not be worth celebrating, not concern.