CHina’s chief negotiator in the trade war, Deputy Prime Minister Liu He, had already revealed in Washington what the Beijing Statistics Office has confirmed this Friday: There can be no question of a weakness in the Chinese economy – at least if you follow the official figures.
China’s gross domestic product grew by 6.1 percent last year. According to a general definition, value measures the value of all goods and services produced. Even though the Chinese economy grew so slowly 29 years ago, 6.1 percent is still ten times more than the value of the German economy last year. The American economy has not even grown half as fast as China’s in 2019.
The fact that the growth rate in the People’s Republic was only 3.9 percent at the time, in 1990, had to do in particular with the massacre on Tiananmen Square in the previous year and its estimated thousands of deaths. It plunged the country and its economy into a deep crisis for years, in which the foreign economy also withdrew from the world’s largest market, at least for a brief moment.
6.1 percent in 2019 – on the other hand, that’s not just a decent value because it lies within the range of six to 6.5 percent, the Chinese government last spring, as always, at the session of the National People’s Congress, the bogus parliament, had set as the target.
Economic growth of more than six percent is also surprising because China suffered from the trade war with America last year. Exports, for example, hardly increased in the year as a whole compared to 2018 with 0.5 percent (calculated in dollars), whereas they had increased by around 10 percent in the previous year. Imports even fell by 2.8 percent in 2019, indicating lower demand in the country.
In fact, given the many bad news from Chinese business life, many observers are wondering where the six percent growth actually came from. Take industrial production, for example: it fell by 5.7 percent last year and thus grew half a point less than in the previous year. Retail sales also rose by a whole point, eight percent, less than in 2018. Car sales even fell by eight percent in 2019 – after a sharp decline in 2018. Finally, the number of smartphones sold in China fell by almost 14 percent, although Apple was able to enjoy almost a fifth more iPhones sold than in the previous year.
Whoever talks to entrepreneurs, economists or bankers in China is currently hearing complaints about the weak economic situation. Real estate agents report that they cannot get rid of their expensive apartments because people are short of cash. So how can it be that, according to official statistics, the economy is still growing by 6.1 percent?
Doubts about official numbers
Economists with experience and insight like the finance professor Michael Pettis from Peking University are convinced that it cannot be. Pettis believes that real economic output has increased by less than half the official value.
Above all, Pettis is disturbed by the fact that the world looks at China’s growth statistics as if it were comparable to the calculation of gross domestic product (GDP) in Germany or America. This is not the case: While in Germany, for example, GDP actually measures what “comes out behind”, that is, the goods and services produced, GDP in China is a value that is not “output” but “input” fair.
By investing in even more new roads, railroads, bridges, airports, and train stations, and paying those investments with debts accruing to their state banks, the Chinese government can achieve any growth value it wants, Pettis says. It is not even a matter of falsifying statistics. Rather, the 6.1 percent is not the result of economic activity within a year, but only a description of the target value, which is set by the management at the beginning of the year.
GDP achieved through debt
The many state players – for example the local governments – subordinate everything to this target value and, as Pettis says, usually invest “financed by debt”. Therefore, the GDP value in China is not a description of the growth, but one of the “political intentions”.
All of this would not be a problem if the investments were productive, so they created real added value that increases the country’s prosperity, with which the debt can then be repaid. But that is not exactly the case in China, believe many other economists who research China’s economy in addition to Pettis.
Warning example of the Soviet Union
In the 1960s, too, many observers of the Soviet Union were convinced that, despite the many debts that the Soviet economy was accumulating, it was only a matter of time before it overtook the American one. In fact, the Soviet Union’s share grew to almost a fifth of the global economy – roughly the size of China’s share today. Then she collapsed.
Of course, there are significant differences between the ailing state of the Soviet economy back then and China today, which is closely interwoven with the western economy and is one of the world’s leading players in areas such as the Internet industry and artificial intelligence. However, the comparison of Chinese President Xi Jinping does not appear to be too far-fetched: the example of the fall of the Soviet Empire was the main topic of his first speech as party leader in front of top cadres in 2012 – and, according to reports, he continues to use as a warning behind closed doors to this day.