After Statistical Adjustment, China's Growth "Appears" More "Sustainable"

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After another GDP statistical adjustment by the National Bureau of Statistics (NBS), theories for Chinese economy based on past data, whether "unsustainable" or "collapse," may become irrelevant.

 

According to NBS data released on December 25, the adjustment of GDP in 2008 totaled 1.34 trillion, about 4.4%. Primary industry's figures were down 29.8 billion yuan, from an 11.3% proportion of overall economy to 10.7%. Secondary industry increased by 282 billion yuan, its proportion down from 48.6% to 47.5%. Tertiary industry's numbers were up a staggering 1.0853 trillion yuan, its proportion also up from 40.1% to 41.8%.

Doubts about China's economic statistics regularly abound, particularly about short-term data on GDP, CPI growth rate, and structural statistics. The trustworthiness, or lack of, of short-term data tends to dominate discussions. 

 

On December 20, 2005, based on the first national economic census data, the NBS adjusted growth data from 1993 to 2004. GDP was said to have increased by 2.3 trillion yuan, or 16.8%, in 2004, catching the world's attention as China's economy was claimed to be quite a bit larger than previously thought.

 

2.13 trillion yuan, 93% of that 2.3 trillion yuan, came from tertiary industry. Li Deshui, director of the NBS at that time, explained that there existed obvious errors in accounting for tertiary industry in conventional statistics.

 

After the adjustment in 2005, the fundamentals of China's economic structure have also been substantially adjusted, with the proportion of tertiary industry in GDP rising from 31.9% to 40.7%, and that of secondary industry falling from 52.9% to 46.2%. Data dealing with major structural defects of China's economy have been eased: the fall of investment rate, savings rate, dependence on foreign trade, the proportion of trade surplus among GDP, the proportion of bank credit in GDP, the proportion of money supply M2 to GDP, the ratio of national debt balance and budget deficit of GDP, the ratio of foreign exchange reserves of GDP, and even unit energy consumption of GDP.

 

After the latest adjustment in 2009, the proportion of China's three industries continues structural optimization along this direction. In addition, as the denominator of GDP become larger, investment rate, energy consumption and other structural issues will also continue to slow down.

 

Without the census, the structural issues of China's economy are obviously more serious than economists imagine. The problem is whether the current Chinese economic data structure from the systematic adjustment in 2005 to the present accurately measures the basic structure of the Chinese economy.

 

There are two currents of thinking about the prospects of the Chinese economy. The optimistic attitude believes that investment growth will continue, while the pessimistic attitude thinks that China's economic structural problems are more serious and the substantial growth in investment is not sustainable.

 

Before the data adjustment last Friday, the market consensus was that China's investment rate in 2009 would reach about 45% and consumption rate would drop to 35%. The investment rate is expected to decline after adjustment and consumption rate may increase since the tertiary industry is highly related to consumption. In fact, optimists can respond to pessimists in this way---the real investment rate of China's economy is not so high, and the consumption rate is not so low, it's just that statistics don't show these facts.

 

The current consumption rate of around 35% may still be greatly underestimated. Analysts say rates may be underestimated by at least 10 to 20 percentage points. The obvious errors in tertiary sector statistics, in particular, throw that question up into the air.

 

People tend to use "total retail sales of social consumer goods" to measure consumption, but in fact this data includes neither "service consumption" in education, health care, or even owner-occupied housing, nor area consumption below the county level.