Do China’s GDP numbers matter?

Kimberly Adams Oct 19, 2015
HTML EMBED:
COPY

Do China’s GDP numbers matter?

Kimberly Adams Oct 19, 2015
HTML EMBED:
COPY

China reported Monday that its gross domestic product grew at a rate of 6.9 percent in the third quarter. It’s the first time since 2009 China’s GDP has missed the government’s 7 percent growth target, but it’s still a 10th of a percent above what analysts forecast.

How important all this is depends on whether you believe the numbers the Chinese government puts out about its economy. Some economists don’t — and say a number closer to 3 percent would be more accurate. But GDP is what markets use to measure a country’s growth. And when markets don’t trust the numbers, that’s a problem. 

“Whether you believe in the numbers or not, the reality is this uncertainty is very problematic for the global marketplace,” said Nick Consonery, Asia director at the Eurasia Group.

He said it’s unprecedented that the world’s second-largest economy is so opaque in terms of its financials.

“The reality is that for the next few years, we’re going to be in an environment where the uncertainty about China’s growth is very high, and as a result, the uncertainty in the markets about what to make of China is going to be very high,” Consonery said.

But some analysts point out that GDP doesn’t tell the whole story anyway. Ann Lee, who teaches economics at New York University, said China’s economy isn’t really slowing down that much if you consider the changes happening in the country.

“China’s a much larger economy right now,” said Lee. “And so, when you have a larger base, you can have slower growth and still have the same amount of economic activity going on.” With more people entering the formal economy in China, the rate of overall growth is going to be lower, she said.

That idea is echoed by Yukon Huang of the Carnegie Endowment for International Peace. He was formerly the World Bank’s country director for China, and he said we should expect the slowdown to last.

“China, probably five or six years from now, will be growing at 5 or 6 percent, not 7,” said Huang. “But we have to remember the economy’s a lot larger. If you go back five, six, seven, eight years ago, China’s growing at 10 percent a year, but the economy is half the size that it is today.”

He said even if the GDP numbers are a bit off month to month, in the long run, he thinks they pretty much reflect the reality of growth in China.

There’s a lot happening in the world.  Through it all, Marketplace is here for you. 

You rely on Marketplace to break down the world’s events and tell you how it affects you in a fact-based, approachable way. We rely on your financial support to keep making that possible. 

Your donation today powers the independent journalism that you rely on. For just $5/month, you can help sustain Marketplace so we can keep reporting on the things that matter to you.