Yves here. I am hoisting these comments from February 10 Links for two reasons. One is that in many ways, it illustrates the commentariat living up to its potential via a serious debate of the proposition, “Is China’s growth rate lower that its official statistics say?” But two (and yes I have mixed feelings about making an example of a particular reader, but it is also impossible not to include his remarks for the thread to make sense), one of the participants in the thread engaged in a version of the sort of conduct that led me to shut down comments: bad faith argumentation (ad hominem attacks on sources of evidence rather that addressing what they said), ignoring/talking over other evidence that countered his view (my anecdata from a fair range of sources), and most important, an unwarranted dismissive tone. This was far from the worst example but illustrates how some readers will resort to testiness even when met with reasoned and substantiated rebuttals.
Please forgive the minor formatting eccentricities below. Trying to make it hew more closely to the original comment section appearance seemed likely to undo the nesting, so I opted for “the perfect is the enemy of the good” version.
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Yves Smith No, its GDP is NOT growing at 5% a year. I can tell you here from the sex capital of Southeast Asia that Chinese tourism is way down v. last year, and that was before the actor kidnapping scandal made things even worse.The reported China GDP figures have been widely recognized as unreliable forever. That is why analysts looks for proxies like electricity use…and then China started hiding that.Michael Pettis has debunked that: https://www.scmp.com/economy/china-economy/article/2189245/chinas-gdp-growth-could-be-half-reported-number-says-us One specific and large source of difference from how everyone else calculates GDP is bad debt losses are debited from GDP totals. China does not do that.
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Roger Boyd So the China Electric Council is just lying then about 7% annual electricity usage growth and the huge expansion in Chinese renewables, while coal electricity generation remains stable, is just feeding nothing? Pettis pushes the “China over-production and under-consumption” narrative that has been used for years, while Chinese consumption actually keeps increasing as real incomes rise.https://www.reuters.com/business/energy/china-power-demand-growing-faster-than-expected-2024-industry-association-says-2024-10-29/#:~:text=The%20China%20Electricity%20Council%20now,kWh%20in%20its%20previous%20report.https://www.carbonbrief.org/analysis-record-surge-of-clean-energy-in-2024-halts-chinas-co2-rise/#:~:text=Even%20larger%20clean%20energy%20additions%20likely%20in%202025&text=Yet%20solar%20and%20wind%20capacity,wind%20connected%20to%20the%20grid. -
Yves Smith I can tell you from direct and indirect reports I am here (where I am has lots of Chinese backing for projects plus an intermarried mafia) that China is not in very good shape right now. These reports are consistent. Yes, anecdata but the sources they tie back to are pretty varied (like princeling children, tour operators, Chinese entrepreneurs and entertainers).From the Financial Times November 2024. Note it specifically questions consumption data: China’s official statistics, particularly its annual GDP figures, have long been the subject of scrutiny. In 2007, Li Keqiang, later the premier, remarked that they were unreliable and that he relied on three alternative indicators to evaluate economic performance: railway cargo volume, electricity consumption and bank lending. These metrics came to be known as the “Keqiang Index”.
Many observers suspect that GDP figures in the past few years have been inflated. Local officials tend to view meeting regional targets as necessary not only to keep their jobs but also to secure promotions. This atmosphere of distrust intensified in August 2021 when China’s internet tsar prohibited any social media publications that could “distort” macroeconomic data. Such restrictions have silenced comments from leading economists in China, and several banks and research institutions have become reluctant to publish forecasts which fall below official figures. In some cases, economists have been told to refrain from critiquing official data.
The government’s attempts to suppress negative commentary may stem from concern over the long-term effect of stringent economic controls imposed during the Covid-19 years, which saw investor and consumer confidence decline to what was then an all-time low. This has had a perverse effect: in private conversations, jokes about GDP figures are more widespread than ever.
Publicly available, reliable, up-to-date data allows investors to monitor developments and manage their expectations. If fundamental statistics such as GDP, consumption index and unemployment rates lose their credibility, investors will be forced to prepare for the worst-case scenario. In 2023, China’s National Bureau of Statistics stopped publishing youth unemployment data after figures reached a record high for several consecutive months. The government later resumed the release but excluded students from the count, claiming that this offered a more accurate representation.
In December 2023, China’s Ministry of State Security warned key commentators on social media to stop criticising the economy and spreading what it alleges to be disinformation. Last month, Zhu Hengpeng, a leading economist at a top government think-tank, reportedly disappeared after making disparaging remarks about the economy in a private WeChat group.
These troubling developments have intensified scepticism about China’s economic reality, creating what could be described as a Tacitus Trap. Named after the Roman historian, this theory posits that when public trust in government erodes, citizens will assume that all information released by government — regardless of its truth — may be false. Some netizens even joke that China owes its recent economic success to the National Bureau of Statistics, the Central Propaganda Department and the Internet Information Office.
https://www.ft.com/content/de9af759-2b94-4b7e-98e4-42698900efeb
As for the figures you cited, any GDP estimates or proxies need to cut to reflect debt writedowns.
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Roger Boyd The Pettis article is from 6 years ago, how is that relevant to 2025? He has been going on about Chinese “issues” for a very long time, but China just keeps on growing and upgrading its economy. He wants China to mimic the consumption centric Western nations, while China focuses on investment raising real wages. GDP is a calculation of the output of goods and services, debt is not a part of that calculation – so what is the problem with Chinese GDP per capita? Chinese debt is also predominantly owned by Chinese, much of it the state, while Chinese nominal GDP grows and it has very large foreign exchange reserves.China is rebalancing quite massively (and successfully) from the housing investment driven economy to one more focused on the development and upgrading of the productive forces. It is managing bad debts in a very controlled fashion, which a Party-state dominated society that owns and significantly controls most of the financial sector can do. The US has regularly played the same games in allowing banks to count actual bad debts as good ones on their balance sheet, so that they can “work off the bad debts”. The Fed also took on massive amounts of devalued debt securities and loans onto its books in the GFC at face value to socialize private losses. As European states and the ECB did in the early 2010s.The rebalancing will most definitely be felt by the richer and younger Chinese who invested in now much depreciated Tier-1 and Tier-2 city properties, but much much less by the less wealthy and outside those cities. Also, much of the easy money in property and financial speculation has been stopped. So the group that travels abroad and ostentatiously consumes and speaks much better English will be affected. And the groups that you mention would certainly be feeling the pain. There is also a very strong official drive away from the exuberant display of wealth. While luxury goods suffered in 2024, new car sales reached a new record. As for the FT, it sadly lost its journalistic integrity a few years ago. I say sadly, because before it was a very reliable source. Referring to 2007 when there most definitely were issues with Chinese GDP reporting is pretty irrelevant for 2025, especially after the government made strenuous efforts to clean up its act. Accurate statistics are central to accurate decision making by both the state and private actors, and they understood that. The rest of the story is hardly better than unsourced tittle tattle (well below previous FT standards). Excluding students from the youth unemployment count is actually the general standard, shame on the FT for not stating such. China does not include any meaningful amount for the fictitious “household implied rent” as the US does, so there are definitely swings and roundabouts.
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Yves Smith I have contacts who own businesses in other parts of SE Asia and they also report that China has slowed, so this is a completely different set of data points. Chinese investment in projects here is also down, which is again not a function of tourism. I said the reports were coming from all sorts of sources, including princelings, and struck me as admissions against interest.The underlying Pettis reports on how China’s GDP computation is not comparable to Western methods is here, which I was remiss in not posting. The structural issues on how GDP is computed remain the same: https://carnegieendowment.org/china-financial-markets/2019/01/what-is-gdp-in-china?lang=enSee also: Some economists say China’s GDP figures have become less reliable.
“Namely from 2014 to 2019, Chinese GDP growth barely moved at all, just a little over 1.5 percentage points for six years,” Wright said. “We can never find another major economy, particularly one of that size, where GDP had been that stable over time.”
In the meantime, he said, China’s interest rates were going up and down, commodity prices collapsed and credit conditions tightened, yet none of that volatility showed up in China’s GDP.
“In 2023 it’s an even more questionable story that China’s economy is growing at 5% or faster,” Wright said. “It’s hard to know what exactly is accounting for that growth.”
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PlutoniumKun Leaving to one side the undoubted biases in Chinese data (stated numbers have always to be taken with a large grain of salt), GDP is itself a very inadequate measure of economic development – Simon Kuznets, who developed the measure in the 1940’s repeatedly warned about this and was not happy about politicians using it to compare countries, in particular at different stages of development. Its worth reading his own analyses of its weaknesses to understand why its very unwise to see short term changes as having any real meaning with regard to ‘real’ growth.There are of course proxies such as energy use, but they too are limited, in particular in recent years. Japanese energy use actually increased significantly after the crash in 1990 – mostly because the government turned to covering much of the country in concrete in a desperate attempt to keep the economy going. It is unsurprising that energy usage (specifically electricity use) is increasing in China as it has heavily skewed its economy towards investment, otherwise known as making vast amounts of concrete and steel and trying to find somewhere to put it. There is also a major transition taking place within the economy to move from direct thermal to electric use for industry, which is undoubtedly skewing the figures. In many ways, a drop in overall energy use would probably be a good sign, because it would indicate that older plant is being finally mothballed in favour of more modern higher productivity industrial uses.The Chinese property bubble was by some measures the greatest misallocation of capital in history. It hasn’t even come close to being resolved, property prices to income are still vastly out of synch with nearly every other country at similar or higher levels of development. Your comments about who are effected are way off the mark – property is the fundamental source of saving for hundreds of millions of ordinary middle income Chinese. 80% of Chinese are homeowners, and 20% own two or more properties. The rich and better off were protected by their foreign hedges. I don’t believe there is a precedent in history for such a high proportion of a population to be so invested in one form of savings, and then seeing it going into terminal decline. The Japanese, Irish and Spanish property crashes were small beer in comparison to the decline in China, and its only at its initial stages, there is a long, long, way before it hits a floor. You cannot win against the long term fundamentals. Add in a demographic decline and what we are seeing is a massive destruction of what was always purely notional wealth. There is nothing new or anti-Chinese in Pettis’s analysis. He is saying nothing that has not been written repeatedly since the 1990’s by Chinese economists and even the Chinese government itself. The choice to go for a suppression of domestic demand and a very high investment oriented economy was deliberate. Its the exact same model which was pioneered by the US, then followed by Germany, Japan (twice), ROK, China, etc. The hazard in this model is, and has always been well known to students of economic development – that you can only go so far with investment before rates of return fall, and you can only produce goods in line with long term demand. Supply does not create demand unless we find another planet to sell stuff to (or… crazy idea this – you pay people enough to buy more stuff). And if foreigners no longer want to take up your demand, you have to develop it yourself.
China is now in a situation which was widely predicted – by the Chinese government itself which was quite open in the early to mid ’00s about the upcoming need to recalibrate and balance (the 2007 crash knocked this off course). Its the same ‘ceiling’ that the US hit in the 1870’s (the Long Recession, which took around 2 decades to resolve itself), and every other fast growing developing economy has hit a similar ceiling at some stage. Some have gotten past it (ROK), some just got over the line before staggering to a halt (Japan), some fell all the way back (Argentina, Brazil, etc). These issues are well known to anyone with a passing acquaintance with economic history (which obviously excludes most economists).
China is perfectly capable of getting past this problem – in theory anyway. But its one thing to identify a problem, its another thing to implement the solutions. So far, they are doubling down on past policies (i.e. increasing ‘investment’ and hoping demand for it appears by some magic), which is probably just putting off the inevitable return to fundamentals.
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