Published January 20, 2024
Doubts hang over health of Chinese consumers, but not all economists are skeptical
NEW YORK — Doubts have swirled around China’s official 2023 economic growth figures published this week, as some analysts struggle to reconcile government data with their own assessments.
China’s gross domestic product grew 5.2% last year, the National Bureau of Statistics reported Wednesday, in line with Beijing’s target of “around 5%.” The figure represents an improvement from 3% in 2022, when the country was restrained by strict zero-COVID policies.
Lifting those restrictions helped spark a rebound in consumption as China’s consumers returned to shops, restaurants and hotels. But the country’s ongoing property crisis — and a decline in exports, the first in seven years — hampered growth.
Chinese Premier Li Qiang gave a sneak peek at the 2023 figure during his speech at the World Economic Forum’s annual meeting in Davos, saying China had met its target without “massive stimulus.”
Questions over the official 5.2% figure stem largely from whether the consumption boom was enough to offset the drags on China’s economy.
“I think the skepticism inside China and outside China about the official data seems widespread and justified,” said Scott Kennedy, a senior adviser and Trustee Chair in Chinese business and economics at the Center for Strategic and International Studies in Washington.
Stronger than expected growth numbers help create a sense of economic momentum, which encourages private investment and household consumption, Kennedy said, but “the business community and investors in China are not convinced China has turned the corner.”
Before COVID, the business community gave the government the benefit of the doubt on this data partly because of the obvious and substantial growth occurring year after year, Kennedy said.
“That ambiguity is now typically interpreted in the other direction,” he said.
Shares fell in Shanghai and Hong Kong following the official data release on Wednesday, and Hong Kong’s Hang Seng Index closed Friday down 5.8% on the week.
Rhodium Group, a research firm with a focus on China, was particularly dubious of the official growth number, calling it “irreconcilable with evidence of general malaise and reactive policymaking that has piled up all year long.” Rhodium estimated the actual growth figure as closer to 1.5%.
Doubts about the reliability of China’s official economic data are not new. Capital Economics’ China Activity Proxy gauge — which attempts to track the economy by other components, including freight and passenger traffic, car sales and service sector electricity usage — suggests actual growth has undershot Beijing’s announcements since the start of 2022. But not all observers share Rhodium’s low assessment.
A group of 16 economists from within and outside of China surveyed by Chinese financial news provider Caixin estimated an average of 5.3% growth for China’s 2023 GDP, in line with Beijing’s number. The International Monetary Fund projected China to grow at 5% in its most recent world economic outlook from October.
“I tend to think it’s relatively accurate,” said Nicholas Lardy, a senior fellow with the Washington-based Peterson Institute for International Economics. “There’s a wealth of data released [this week], and in my view, it all hangs together,” he said, arguing that a substantial leap in disposable household income helps explain the spike in consumption.
That could be a positive sign for 2024, as China’s economy is expected to slow without the rebound seen in 2023 from removing COVID restrictions. The IMF forecasts the economy to grow at 4.2%.
Alongside Rhodium’s weaker estimation for 2023, the firm’s forecast for 2024 sits at 3%-3.5% as part of a broader structural slowdown China’s economy has entered following years of double-digit growth.
“We think the economy [in 2024] will look better than last year, but nothing like the pre-COVID growth rates that an improvement on China’s official figures would imply,” the firm said, with the caveat that greater than expected government stimulus could bring an unforeseen boost.
Assessing the state of an economy without using government data is done through various ways, including tracking indirect signs such as air pollution or nighttime luminosity in cities.
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SOURCE: www.asia.nikkei.com
RELATED: China is entering an era of stagnation and disappointment that may not be resolved like Japan’s, Nobel economist Paul Krugman says
Published January 19, 2024
- China’s economy is headed for an era of stagnation and disappointment, Nobel laureate Paul Krugman wrote.
- The country’s economic model has been unsustainable for years, given ultra-low consumer spending.
- “Let’s not gloat about China’s economic stumble, which may become everyone’s problem.”
The world’s second-biggest economy is underperforming on nearly every barometer, Paul Krugman wrote in an op-ed piece for The New York Times.
In fact, the problems faced by China today mirror those Japan experienced after its asset-price bubble burst in the 1980s. But where Tokyo managed to avoid issues such as widespread unemployment, GDP decline, and political strife, Beijing may not come out so positively.
“It’s not a full-blown crisis, at least not yet, but there’s reason to believe that China is entering an era of stagnation and disappointment,” the Nobel laureate said.
To Krugman, part of the problem stems from China’s leadership, with President Xi Jinping’s arbitrary interventions — such as his crackdown on the country’s tech industry — getting in the way of efficient economic management.
But even under better stewardship, China’s economic approach has been unsustainable for years and was set to break down eventually.
That’s as the nation’s massive growth streak of the past decade has barely relied on consumer spending, which has made up a meager percentage of GDP.
Among reasons for this is financial repression and weak social safety nets, which created incentives for households to save more than spend. To generate demand, China instead focused on heavy investing, which accounts for over 40% of GDP.
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SOURCE: www.businssinsider.com
RELATED: China’s Economy Is in Serious Trouble
Published January 18, 2024
In 2023, the U.S. economy vastly outperformed expectations. A widely predicted recession never happened. Many economists (though not me) argued that getting inflation down would require years of high unemployment; instead, we’ve experienced immaculate disinflation, rapidly falling inflation at no visible cost.
But the story has been very different in the world’s biggest economy (or second biggest — it depends on the measure). Some analysts expected the Chinese economy to boom after it lifted the draconian “zero Covid” measures it had adopted to contain the pandemic. Instead, China has underperformed by just about every economic indicator other than official G.D.P., which supposedly grew by 5.2 percent.
But there’s widespread skepticism about that number. Democratic nations like the United States rarely politicize their economic statistics — although ask me again if Donald Trump returns to office — but authoritarian regimes often do.
And in other ways, the Chinese economy seems to be stumbling. Even the official statistics say that China is experiencing Japan-style deflation and high youth unemployment. It’s not a full-blown crisis, at least not yet, but there’s reason to believe that China is entering an era of stagnation and disappointment.
Why is China’s economy, which only a few years ago seemed headed for world domination, in trouble?
Part of the answer is bad leadership. President Xi Jinping is starting to look like a poor economic manager, whose propensity for arbitrary interventions — which is something autocrats tend to do — has stifled private initiative.
But China would be in trouble even if Xi were a better leader than he is.
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SOURCE: www.nytimes.com
