What Chinese Q1 GDP Growth Really Tells Us

By John Richardson

ChinaGDPQ12014ONE of the comments the blog often hears is that even though China’s GDP growth has clearly decelerated, when measured against anywhere else in the world its growth rates are still tremendous.

This argument is deeply flawed and belongs to the world of “wishful thinking”.

The key, instead, is to first of all  understand what the implications of decelerating growth actually mean for the global economy, given the artificial “sugar high” that it enjoyed from the credit-fuelled double-digit growth in China in 2009-2013.

And secondly, there are lies, damned lies and, of course, statistics. The 7.4% GDP growth that China saw in Q1 2014 was measured on a year-on-year basis.

As the New York Times pointed out in this article: “Much of the year-on-year growth in the Chinese economy reflected by the 7.4% growth figure released on Wednesday morning was the result of economic expansion that actually took place during the second, third and fourth quarters of last year. [Last December, warned of the potential for deceleration after this expansion had peaked]

“Although the United States and many other industrialised countries release annualized economic growth figures for each quarter compared with the previous quarter, China does not provide this statistic, preferring year-on-year figures that show less volatility.

“Private economists estimated that the annualized, quarter-on-quarter growth was between 5.2 and 5.7%, depending on what seasonal adjustment was used.”

We agree with fellow blogger, Paul Hodges, that the deceleration will continue and that  GDP growth – whether on a year-on-year basis and/or on a quarter-on-quarter basis – could well reach zero over the next couple of years.

This would in fact be  good rather than bad news, as it will be a sign that the Chinese government has got to grips with its long-term problems.

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