The Asian Development Bank (ADB) recently released its predictions for Chinese Economic Growth in 2015. According to the report, China will grow 7.2%, whereas earlier in the year Beijing predicted only 7% growth. Regardless of which number holds truth, the important information to take away is that China is, as we know, slowing down. Last year China posted a growth of 7.4%, which according to the BBC was China’s slowest growth rate in twenty-four years.
The slowdown is attributed to many things, however much of the blame is being placed on weakening investment in the property and housing sectors. These sectors have been focal points in recent Chinese investments; therefore a slowdown at the macro level following the weakening of this micro level is expected. And the trend of weak property investments is expected to continue. Further woes in these sectors will continue to trend of Chinese deceleration unless the Chinese investors can find a new target for steady investment.
Issues in housing also bode ill for the growing migration problems, as many rural migrants cannot find suitable housing. Although largely caused by Hukou, weakening property investments will make housing more migrants even more challenging once Hukou is inevitably reformed.
The timing of this report is also important because it comes in the wake of escalating regional tension between the U.S and China over the Asian Infrastructure Investment Bank (AIIB). A Chinese led venture, the AIIB will perform many functions similar to both the World Bank and ADB. However, the United States is heavily embedded in both of the existing institutions, therefore China taking the initiative to create a monetary governing body is seen as a direct challenge to United States influence in the region.
Prior to the release of its report, the ADB president said that he hopes the ADB and the AIIB can “complement each other”. However, Leland Miller said that the Chinese don’t care if you dispute their claims so long as you do not provide an alternative figure. By the ADB meeting both of these criteria in their statement, despite predicting slightly better growth and extending an olive branch to the Chinese, this may be adding more tension to a situation already defined by an entangled web of international alliances and duties.
Source:http://www.bbc.com/news/business-32031306
Part of me thinks the more conservative growth estimates released by the Chinese government are an attempt to restore credibility in the government’s control of the economy. By shocking with conservatism, the government might signal its days propping up the Chinese economy – both through cooking the books and unsustainable artificial investment – are coming to a close.
This is definitely a possibility, especially when you consider the trend of inaccurate Chinese data. China may have conducted completely different sets of calculations. On the other hand, China is outwardly proud of its successes and wouldn’t hesitate to boast. We should also keep in mind that while China growing at 7% is slow and cause for alarm to some Chinese, it is still a phenomenal growth rate. But this doesn’t answer the question. China could be underestimating to save face, but also still could be boasting.
Don’t be too quick to dismiss Chinese data that are either not generated by provincial and urban governments, or that are otherwise not salient for politics. The decomposition of GDP growth makes sense, once published. Timely? Gaps between “flash” numbers and the finalized annual data (which in Japan aren’t issued until 18-24 months after the fact)? Furthermore, as we discussed in class, measuring output in an economy that is still heavily rural and still includes lots of informal production is very hard. For example, when the central statistical agencies rolled out their improved coverage of services, total GDP make a large one-time jump. Of course the numbers most quickly available are ones fed up the reporting chain. Even the central government treats those with skepticism.
All sorts of indicators (consumption of passenger cars) complement the “headline” numbers. Rapid growth is not an illusion. But whether it was 11% or 10.2% — well, even with the best of intentions, operation independence and a substantial budget, accounting for a rapidly evolving economy involves a wide array of estimations. You want to count services? How many of the repair shops in your database from last year are still there? How many totally new types of businesses have sprouted that are hard to count until they mature?
For AIIB, see comments on many previous posts. This story is no longer “news”.