China the Roaring Economy – Or Maybe Not

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In any grand strategy discussion for the United States, EU, Russia – or any country for that matter – China is seen as the raising power (welcomed or not). Quarter after quarter comes news about its explosive GDP growth and the new buildings sprouting over coastal China, especially Shanghai, have been a testament to this.

But despite all this – people forget that China is not infallible. And while growing, we cant assume its stated spectacular growth is always on the mark – just because the officials say so. Just like most do not take for granted what China says about its defense spending, we should always been suspect about taking China’s self-reported GDP numbers for granted. There is of course real growth occurring, but the Chinese Government has an image to maintain to the world and its people and feels it can’t afford to show even a normal cyclical downturn.


From Simon World

Over at Econbrowser, James Hamilton points out to some interesting data bringing some interestingly scrutiny to that data:

Consider Simon’s graphs at the right. The first shows the levels of various Chinese GDP components, which might look reasonable at first blush. But when you subtract investment, net exports, and government spending from GDP, you arrive at what should be the sum of consumption spending plus inventory investment, represented by the magenta curve (which Simon helps the color-vocabulary-challenged to identify as “the line in the ugly colour”). Trouble is, this ugly magenta line clearly trends down, and that can’t remotely be explained by inventories. The implausible behavior is even more clear when plotted as growth rates as the red line in the second graph.

Read the entire post at Econbrowser…

Conclusion
Many on the “China as the new USSR” should take note that just like the threat and might of the USSR was sometimes overplayed (remember Kennedy during the election?), so is China sometimes played the same way. The point of the matter is simply this: the changes in China are far more complicated than can be placed in simple headlines proclaiming “The Raising Dragon” and the like.