GOODHART'S LAW

China’s GDP number is a fiction, but a symbolic one

Obsession
China's Transition
Obsession
China's Transition

China is just about the only economy in the world to aim for a specific rate of GDP growth every year, and when you make a measure a target, it ceases to be a good measure. Chinese premier Li Keqiang has acknowledged that his government’s GDP figures are “man-made” and “for reference only.” (paywall)

Nevertheless, the growth rate—7.3% in the third quarter, the government announced this morning—is closely watched as a barometer of Beijing’s choices as it manages the world’s second-largest economy

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In the topsy-turvy world of Chinese economics, a lower number could have been seen as good news, suggesting that China’s leaders are serious about enacting difficult financial reforms and trimming back dangerous levels of debt. And a higher figure would have raised fears that Beijing is squandering the chance of long-term growth in favor of short-term comfort. Straddling those two extremes, a 7.3% growth rate is a clear signal of China’s commitment to reining in debt while still trying to signal that the government is in control.

The fact that the annualized figure was better than the 7.2% consensus expectation provided a small bump to global financial markets, but it still represents a slowdown from the previous quarter’s 7.5% growth, and is the economy’s slowest rate of expansion since 2009—during the global financial crisis. Factory output was slightly higher than expected; fixed asset investment and retail sales were slightly lower.

Beijing has said it will still aim to achieve 7.5% GDP growth for the full year, most likely by using targeted measures such as extending short-term credit to banks, rather than the broader stimulus measures favored by US and European central banks. But it’s getting harder to hide the fact that China’s growth rate—symbolic as it may be—is steadily trending downward.

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