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What Is GDP in China

The Chinese economy is not growing at 6.5 percent. It is probably growing by less than half of that. Not everyone agree
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The Chinese economy is not growing at 6.5 percent. It is probably growing by less than half of that. Not everyone agrees that the rate is that low, of course, but there is nonetheless a running debate about what is really happening in the Chinese economy and whether or not the country’s reported GDP growth is accurate.
The reason for the widespread skepticism is the disconnect between the official data and perceptions on the ground. According to the National Bureau of Statistics, China’s economic growth in every quarter last year exceeded 6.5 percent. While that is much lower than the heady growth rates China has experienced for most of the past forty years, it is still, by most measures, a very brisk rate of growth.
And yet, when you speak to Chinese businesses, economists, or analysts, it is hard to find any economic sector enjoying decent growth. Almost everyone is complaining bitterly about terribly difficult conditions, rising bankruptcies, a collapsing stock market, and dashed expectations. In my eighteen years in China, I have never seen this level of financial worry and unhappiness.
These concerns have even breached academia. One of my students told me yesterday that there was a huge increase last semester on the university website in the number of students selling their belongings because they are hard up for cash. They are selling their phones, computers, clothing, and lots of other possessions. He said the amount of selling is noticeably higher than last year, enough so that everyone is talking about it. And he indicated that this is apparently happening at other schools too. It seems that the poor and middle-class kids are squeezed for cash because they are getting much less money from home than they have in the past.
This isn’t what you’d expect to hear from an economy growing at more than 6.5 percent. So what does it mean exactly to say that China’s GDP is growing at that pace? It turns out that there are three completely different sets of problems that affect how China’s GDP growth statistics should be interpreted. Analysts must keep these three problems straight and make sure that they don’t confuse matters by conflating these separate issues.WHAT DOES GDP MEASURE?
The first set of problems relates to the meaning of GDP itself. This challenge affects not just China but the rest of the world as well. This is especially true for advanced economies with substantial technology and service sectors that employ technology whose value may be substantially understated by an inability to count it accurately.
GDP is typically assumed to measure the creation of real economic value. If a country’s GDP rises by 5 percent over the course of a year, for example, this is interpreted to mean that the amount of wealth the country produced in the last year is 5 percent greater than in the previous year. In other words, it would be assumed that the country’s ability to service debt would have increased by 5 percent, which means roughly the same thing.
But there is no way to truly measure a country’s creation of real economic value, as GDP is just a proxy for whatever it is thought to measure. Economists have agreed which measurements go into calculating GDP, and the resulting sum is referred to as a country’s aggregate GDP, or the value of everything produced locally in that economy.
Of course, not all value-creating activities are counted when GDP is measured. For instance, if you teach your friend Spanish for free, you add to the wealth of the economy, but you do not add to GDP. By contrast, if he does pay you, the country’s GDP does increase by the amount of money you are paid, even though you are adding exactly the same value to the economy itself whether he pays you or not. In addition, not all measured activity actually creates value: building a bridge to nowhere, for example, creates exactly the same increase in GDP as building a much-needed bridge.
No proxy of economic value is perfect, of course, but there are real questions about whether GDP is imperfect to the point of being useless as a proxy. Does GDP really do a good job of capturing all the value creation in an economy? While this is a serious problem everywhere, it may be even more of a problem in China because of the huge amount of investment in nonproductive activities that is counted in China’s GDP data even though this investment does not add to the country’s wealth or its debt-servicing capacity.HOW ACCURATE ARE CHINA’S GDP STATISTICS?
The second set of problems has to do with how carefully and faithfully Chinese statisticians at the National Bureau of Statistics are calculating the agreed-upon elements that go into measuring GDP. Do they tend to collect the data in the way that introduces mistakes that are systematically biased (upward, to show higher than actual GDP, I would assume)? Or are they actually lying to please their political bosses?
I am pretty sure that China’s economic data collection is distorted in ways that smooth out volatility, but otherwise I assume, at least until very recently, that the National Bureau of Statistics has followed generally accepted rules for calculating GDP more or less correctly. I don’t have a high level of confidence in my assumption though: as I pointed out earlier, it is hard to find any sector of the Chinese economy that is behaving the way you’d expect a country growing at more than 6.5 percent to behave. Furthermore, especially in recent years, it has been hard to reconcile other economic proxies with the GDP numbers. (See, for example, this article by Johns Hopkins University economists Bob Barbera and Yinghao Hu, which itself refers to a satellite imaging study.)
What is more, people whose work I greatly respect, like Anne Stevenson-Yang of J Capital, seem very much to doubt the data and argue that China’s actual growth rate is much lower than the posted numbers, largely because the data is falsified at some level of the collection process. But whatever the case may be, if there is indeed a substantial discrepancy between what the statisticians actually measure and what they are claiming to measure, it is very hard to make predictions about how long the overstatement will continue and how much of an adjustment it will eventually undergo.IS GDP MEASURED AS AN OUTPUT OR AN INPUT?
The third set of problems with GDP occurs in a very limited number of cases globally (today, China is the main example). But the implications are much greater. This has to do with whether GDP is even being used as a proxy for economic activity. In China, reported GDP does not tell observers about the economy’s performance; rather, it tells people how rapidly Beijing thinks it can impose the necessary adjustments on the Chinese economy. This is because GDP means something different in China than it does in most other major economies.
In any economic system, GDP is supposed to be a measure of output, and in most countries that is exactly what it measures, however messily. The economy does what it does, in other words, and at the end of a given time period, statisticians measure the things economists agree to include in the relevant calculations, and they express the change over time as the scale of GDP growth for that period.
This is not what happens in China, where GDP is actually an input determined annually as the country’s GDP growth target. The growth target of a given time period is decided well ahead of time, and to achieve it, various entities, including local governments, engage in the requisite amount of activity, usually funded by debt. As long as China has debt capacity, and as long as it can postpone the writing down of nonproductive assets, Beijing can achieve any growth target it desires. 
But this arrangement changes the meaning of GDP. Reported GDP in China is no longer a measure of economic growth, but rather a measure of political intention. As any systems theorist knows, input data reveals nothing about the performance of a system. So when analysts discuss what reported GDP indicates about the health of the Chinese economy, such thinking involves a very basic mistake in systems theory—a systems input can only offer insights about the goals of the operators, never about the performance of the system itself.
In practical terms, this means that once Beijing sets a GDP growth target, local governments are expected to generate enough economic activity to reach that target, and they are able to borrow as much as they need to do so. If this activity were productive, there wouldn’t be a problem, although it would be an amazing coincidence (or a truly incredible feat of prognostication) for the amount of productive activity truly to equal the growth target. What would be more likely in that case is that GDP growth would consistently exceed the target, which is indeed what happened until about a decade or so ago.
But if the economic activity isn’t productive, there are two requirements that allow China to set GDP growth as a systems input in a way other countries are unable to do. First, there must be no hard budget constraints, so as to allow economic entities to persist in value-destroying behavior year after year. Second, the resulting bad debt cannot be written down. Once these two conditions are met—and they are in China’s case—Beijing can set any growth target it likes and, as long as it has the necessary debt capacity, it can achieve that target.
But notice that achieving the target reveals nothing about the country’s real economic growth, for which GDP is supposed to be (however imperfectly) a proxy. Once GDP growth becomes a systems input, rather than an output, it does not indicate anything about the economy’s health or performance.CONCLUSION
There is likely to be no end this year to the discussions about China’s economic growth rate and its relationship to GDP. By now, observers widely agree that China’s economy is not as strong as the GDP data suggests. And I suspect that only a handful of the least imaginative resolutely-mainstream economists (and, weirdly enough, this is more likely to be true of foreign than Chinese ones) still believe that China’s economy is as healthy and brisk as would be expected from a country whose GDP is growing at 6.5 percent and is expected to grow next year by more than 6 percent.
The problems facing the Chinese economy, and the worries expressed by Chinese leaders, are so deep that it no longer requires much imagination to figure out that reported GDP in China simply does not represent what we think it represents elsewhere. Yet some economists have not always understood the implications, and they often seem to refuse to adjust their methodologies to take into account the aforementioned problems with China’s reported GDP data. Yesterday, for example, I read a report written by an economist that discussed the implications of China’s PPP-adjusted GDP being the biggest in the world.
But any observers that are at all skeptical about the relationship between the Chinese economy and its reported GDP must dismiss the PPP-adjustment as almost complete nonsense. (I don’t mean that the PPP-adjusted data is less accurate for China than it is for other countries: I mean, quite literally, that it is almost complete nonsense). Any ratio based on reported GDP figures can only be comparably meaningful for China to the extent that China’s reported GDP numbers have the same relationship to the underlying economy—or to whatever GDP is thought to mean—as corresponding numbers in other countries do. But surely few observers still believe that.
The point is that if there has been a divergence between China’s reported GDP figures and the country’s underlying economy, there are at least three completely different ways that this discrepancy can manifest itself. Observers too often confuse the three, however. For example, I have said many times that I believe that if China’s GDP were to be expressed in a way that is comparable with that of other countries, it would be growing at less than half the current reported growth rate.
A lot of people interpret this to mean that I think Beijing is falsifying the data, but I don’t mean that at all. In my mind, the biggest problem is that China’s reported GDP is an input into the economic system, not a measured output. To make China’s GDP figures comparable to those of other countries, the input numbers would have to be adjusted with some relevant output, such as the amount of bad debt that should be (but isn’t) written down in a given time period. If this amount were subtracted from China’s nominal GDP growth rate, the resulting adjusted growth rate probably would be a lot closer to what economists think of as GDP than the country’s actual reported GDP data is.
Aside from this blog I write a monthly newsletter that covers some of the same topics covered on this blog. Those who are interested in receiving the newsletter should write to me at chinfinpettis@yahoo.com, stating affiliation. Collapse reading »

New Year's Eve - 30th December in Chinese Luna Calendar

What's the traditional activities of Chinese New Year in Beijing? - Click here to see more In Chinese luna Canlendar, the
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What's the traditional activities of Chinese New Year in Beijing? - Click here to see more
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In Chinese luna Canlendar, the last day of the "Year" is called "New Year's Eve." It is connected with the end of the new year, which is called "the end of the year, the connection of the next year," is the eve of the new year, is the important time junction of the old and new.
In the hearts of Chinese people, it has special significance. On the most important day of the year, the wandering and far-away wanderers are also rushing home to reunite with their families. They are retired in the sound of firecrackers, and the fireworks are full of spring. Collapse reading »

Grave to ancestors - 29th December in Chinese Luna Calendar

What's the traditional activities of Chinese New Year in Beijing? - Click here to see more Preparation for the Spring Fe
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What's the traditional activities of Chinese New Year in Beijing? - Click here to see more
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Preparation for the Spring Festival should be completed today, the day before New Year's Eve. Worshipping ancestors is also a major event on this day, by which people express their gratitude and yearning for their ancestors during the important festival.
In addition to preparing for the various food and clothing in the festival, there is also an extremely important activity, "Going to the grave to ancestors."
The worship of ancestors has a long history in China. Death is not only an important symbol of filial piety, but also a virtue of respecting the elderly and respecting the elderly. Therefore, every festival, people must pay tribute to the ancestors. This is not only a kind of comfort to the ancestors, but also the gratitude and thoughts of future generations. Collapse reading »

Prepare the Chinese cake and paste paper-cutting - 28th December in Chinese Luna Calendar

What's the traditional activities of Chinese New Year in Beijing? - Click here to see more The folk song said: "28th
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What's the traditional activities of Chinese New Year in Beijing? - Click here to see more
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The folk song said: "28th December in Chinese Luna Calendar, prepare the Chinese cake and paste paper-cutting on the windows."  
In old days, people need prepare the New Year food in advance. Chinese cake is good for keep in the kitchen during New Year festival and another reason is people will not use fire to cook food in the first 5 days of New Year. Chinese cake is good food to eat that time.
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Rush to the big market - 27th December in Chinese Luna Calendar

What's the traditional activities of Chinese New Year in Beijing? - Click here to see more The folk song said: "27th
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What's the traditional activities of Chinese New Year in Beijing? - Click here to see more
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The folk song said: "27th December in Chinese Luna Calendar, rush to the big market and prepare chicken meat."  
The big market on this day is different than other time of the year, people mainly buy the goods for festival, such as firecrackers, spring couplets, incense sticks, burning paper, gifts for children, etc. On this day, the markets in each place are very busy and hot.
Nowadays, in big city, it's hard to find big market now. But people still need to prepare the goods for festival, so we go to supermarket to prepare everything. Collapse reading »

Pork preparing - 26th December in Chinese Luna Calendar

What's the traditional activities of Chinese New Year in Beijing? - Click here to see more The folk song said: "25th D
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What's the traditional activities of Chinese New Year in Beijing? - Click here to see more
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The folk song said: "25th December in Chinese Luna Calendar, preparing the food of pork", said that this day is mainly preparing for the meat of the New Year. 
In the old time, the richer family raising pigs themselves, so the prepare porks from their pigs, but for poor family, they need to buy the pork in market.
Putting the "pork preparing" into the New Year's Eve is because in the old time, the farming society is not developed well, and people can only eat meat in the annual festival. Therefore, it is called "year meat."
Nowadays, in the morden life of big city, each family can buy the meat from market easily and fresh. No one need to raising pigs for a whole year. Collapse reading »

Grind tofu - 25th December in Chinese Luna Calendar

What's the traditional activities of Chinese New Year in Beijing? - Click here to see more The folk song said: "25th D
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What's the traditional activities of Chinese New Year in Beijing? - Click here to see more
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The folk song said: "25th December in Chinese Luna Calendar, push the mill to make tofu." Because the tofu is similar to the "richest" sound, it was placed in the hope of "rich" in the New Year. Speaking of "grinding tofu" is actually the beginning of people preparing for the "new year" during the Spring Festival. In addition to grinding tofu, this day's customs are: pick up the jade emperor, chasing the age, according to the field silkworm, Qianduan Festival... Come and see with Xiaobian! Collapse reading »

Clean the house - 24th December in Chinese Luna Calendar

What's the traditional activities of Chinese New Year in Beijing? - Click here to see more On 24th December in Chinese Luna
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What's the traditional activities of Chinese New Year in Beijing? - Click here to see more
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On 24th December in Chinese Luna Calendar, every family cleans their house. Nowadays, people wash the curtains, carpets, wipe clean all the furnitures.
Dust sweeping has the meaning of expelling the disease and praying for the happiness of the new year. It also has a new emotional desire in addition to "Chen" (dust), which conveys the signal of the busy for the New Year. This custom reflects the Chinese people's love of cleanliness and health, and it has placed people's good expectations and people still maintains this traditional activity now. Collapse reading »