Dubious breakthroughs were made regarding China’s 2021 economic performance. One which will be endlessly discussed is fourth-quarter annualized GDP growth of 4.0 percent. Technically, this is only the worst since Q2-2020. Ignoring COVID, though, we are back in Tiananmen crackdown territory. A silver lining: This will likely make growth look good during the much more politically important fourth quarter of this year.
A second breakthrough which will be sadly ignored is from the National Bureau of Statistics (NBS) itself. The opening sentence of the 2021 national economic results press release sets a new world record (155):
In 2021, faced with multiple tests of grave and complex international environment and sporadic outbreaks of the pandemic at home, under the strong leadership of the Central Committee of the Communist Party of China with Comrade Xi Jinping as the core, all regions and departments strictly implemented the decisions and arrangements made by the CPC Central Committee and the State Council, adhered to the general working guideline of making progress while maintaining stability, coordinated the work of epidemic prevention and control and economic and social development in a scientific way, consolidated the work in stabilizing the six fronts (employment, finance, foreign trade, foreign investment, domestic investment, and market expectations), fully implemented the task of safeguarding the six areas (employment, basic living needs, operation of market entities, food and energy, stable industrial and supply chains, and normal functioning of primary-level governments), strengthened the macro polices for cross-cyclical adjustment, and increased the support to the real economy.
COVID test: If you can say that without pausing or coughing, you’re fine.
The NBS eventually said real GDP rose 8.1 percent for the
year. Nominal GDP appeared to gain 12.8 percent (revisions are handled inconsistently).
An implicit deflator of 4.7 percent split consumer inflation of 0.9 percent and
producer inflation of 8.1 percent. For incomes, the deflator was 1.0 percent,
which allowed personal income to keep pace with GDP. Per capita disposable
income was $5,500, or about one-tenth that of the US.
Growth was seemingly ineffective in creating jobs, as 2020’s 2.3 percent GDP gain was said to create 11.86 million jobs while last year merely inched up to 12.69 million. The fourth quarter brought 2.24 million new jobs. China’s labor force has been shrinking by multiple millions annually since 2012, and this will continue indefinitely. If fast GDP growth was previously needed to create jobs, it isn’t anymore.
The first question asked about China’s GDP is whether to
believe it. Retail sales, a proxy for GDP component consumption, were said to
expand slightly slower than nominal GDP at 12.5 percent. December was ugly, at
1.7 percent, and Omicron may blast January. Faster consumption, including
faster consumer inflation, is necessary for a healthier economy. It may be hard
to convince notoriously pro-saving Chinese households of that.
Fixed investment, a proxy for GDP component investment, was
said to gain 4.9 percent. After several years of the fixed investment series
making no sense, this fits last year’s official number. Fixed investment has
been harshly revised back to 48 percent of GDP, which is far more sensible
than the 70 percent levels the NBS once claimed. The
downside of reasonable data is 2021 fixed investment was far slower than GDP.
Attempting to ride to the rescue is a third component, net
exports. Net goods exports climbed 17.8 percent last year. Services haven’t
been reported yet but that
deficit is falling. The pandemic has made China more dependent on exports.
Finally, through-November fiscal revenue rose
considerably faster than expenditure, so net government spending
didn’t boost GDP growth. But December is a catch-all and this may change.
Industrial production is not a GDP component, which is good
because a reported 9.6 percent gain clashes with crude oil and iron ore imports falling by notable amounts. Pending
December fiscal figures, it doesn’t look like the proxy components can generate
12.8 percent nominal GDP growth. As the NBS says, though, these aren’t the true
components of GDP, they just get published every month anyway.
The second question always asked is what the results mean
for policy. Many observers intensely concerned with making money in the prosperity of the Chinese people have called for
Chinese stocks
stimulus. The People’s Bank did cut its policy interest rate yesterday, but only by 10
basis points.
Meanwhile, bank lending eased at the end of 2021 to 11.6 percent annually, slower than nominal GDP and a form
of deleveraging. Narrow money M1 growth of 3.5 percent argues against real GDP
being as fast as claimed. Combining answers to the two big questions; the NBS
probably exaggerated GDP somewhat and stimulus has a long way to go to matter.
To end on a justified positive note, China does have policy space. In comparison, M1 in the US is incomprehensibly large and monetary policy is dead as a stimulus tool. Beijing has been very restrictive with regard to COVID and cautious in money and fiscal policy. The payoff is that if it wants a short-term boost later this year, it can engineer one.
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