First lesson about China’s GDP growth figure: It’s an impenetrable black box, says economist Patrick Chovanec. "There’s no way you can actually get behind the numbers and figure out where they came from.”
Well, there is a way, if you’re among China’s ruling elite. According to a 2007 U.S. diplomatic cable released by Wikileaks, current Premier Li Keqiang told the U.S. ambassador that China’s GDP figures were "manmade."
Li is now in charge of China’s economy.
Li told the ambassador the way he figured out China’s GDP growth was to look at electricity consumption, rail cargo volume, and bank lending numbers. This magical formula was later dubbed the ‘Li Keqiang index.’
"If you go by the Li Keqiang index, the Chinese economy right now has fallen below the low point that it hit in early 2009 in the wake of the global financial crisis," says Chovanec.
That would put China’s current GDP growth at least a percentage point lower than what the government says it is.
Beijing-based economist Michael Pettis says it doesn’t matter. He says China’s GDP data is supposed to measure economic activity. "So if you build an empty airport, that shows up as an increase in economic activity," says Pettis. "But it’s not really an increase in wealth if nobody uses the airport."
And that’s why, as Premier Li said with a smile in what he thought was a confidential conversation in 2007, China’s GDP numbers are for reference only.