China’s Real Growth Rate

People ask what’s China’s real growth rate, but there’s nothing ‘true’ or ‘false’ about GDP growth figures because countries can define GDP as it suits them. China chooses and weights components of her gross domestic product differently than America, so it’s hard to make apples-to-apples comparisons. But let’s try.

There is, for example, ten times more private real estate construction going on in China right now than in the US but real estate contributes only six percent to China’s GDP while American construction represents fifteen percent of hers.

That’s because China looks at GDP from the point of view of a social necessity, a utility everybody needs (socialism) while America sees GDP from the point of view of a bunch of individual, greedy, amoral consumers (capitalism).

American economists base their calculations on the imputed cost of renting every owner-occupied home in the country. That’s how a bunch of individual, greed-crazed, amoral consumers would see it, so that’s how they count it and, if the US Government switched to counting housing as a utility, like the Chinese do, there’d be a revolution.

Chinese economists count urban housing at its purchase price amortized over fifty years and totally ignore a billion square meters of new rural housing every year. To them there’s no tradeable ‘value’ in it and there should not be. Since it’s a necessity, only its use value should be counted and everything should be geared away from profits and towards getting everyone into a decent home. This approach produces more democratic results than America’s:

Of course, if the Chinese Government switched to counting housing as renting every owner-occupied home in the country, like the Americans do, there’d be a revolution.

Also, because Communists don’t have servants, China excludes the domestic product of fifty-million live-in nurses, millions of babysitters, cleaners, cooks and tutors andwomen selling jianbing snacks curbside in Beijing who clear $600 a day. They don’t count shadow banks either, or a million Uber/Didi drivers, or a hundred million vendors on Taobao, the six hundred billion dollar e-market. And outside Beijing and Shanghai all transactions–including automobile and real estate purchases–are conducted in cash by people who’ve been avoiding taxes for two thousand years.

Bottom line? China’s GDP is much bigger than its GDP figures disclose and, therefore, so is China’s GDP growth. Don’t confuse GDP growth rates–acceleration–with actual growth: they are distinctly different. In 2006, China’s GDP was $7.6 trillion and the economy accelerated by 12 percent (compared to the previous year) or $761 billion. In 2016 GDP was $21.1 trillion and the economy accelerated by 6.7%, it grew by $1.3 trillion, twice as much as in 2006.

Taking methodological differences into account, Washington’s Center for Strategic and International Studies calculated that China’s economy is fifteen percent larger than official figures and the Peterson Institute of International Economics went further, estimating[1] that it’s twenty-seven percent bigger and on track for $29 trillion in 2020: fifty percent larger than America’s.

So China is (quite legally and ethically and publicly) understating the size of her economy by, let’s say, 30%, which means that China has been systematically understating her GDP growth for a long time…by our standards.

But should we force her to change to our method of calculating GDP and, if so, why? After all, as Herodotus said in his Histories, “If one should propose to all men a choice, bidding them select the best customs from all the customs that there are, each race of men, after examining them all, would select those of his own people; thus all think that their own customs are by far the best.”

*This is part of an ongoing series, Is China’s Debt Exaggerated?

[1] Is China Already Number One? New GDP Estimates. Arvind Subramanian (PIIE). January 13, 2011 5:15 PM

Written by Godfree
Visiting China and studying it since 1967. Interested in its culture, politics, education and economy.