Thread by @michaelxpettis

1/15
This set of tweets from a Chinese think tank – about what “steady” GDP growth means in China's political and economic context – shows just how different the concept of GDP growth in China is from that of other countries, and why it is meaningless to compare them.

https://twitter.com/ChinaFinance40/status/1481918302305751041

2/15
Among other things they discuss a proposed “shift from high-speed growth to high-quality growth,” as if these were two different things.

3/15
They aren't. If GDP has any meaning at all, it is as a proxy for the real economic value of goods and services generated by the economy, in which case there can be no difference at all between “high-quality” growth and “high-speed" growth.

4/15
A country’s GDP “growth” is supposed simply to represent the increased ability of workers and businesses in that country to generate economic value. If Chinese businesses and workers are producing a more valuable set of goods and services, then GDP should grow, period.

5/15
Of course in a recent essay Xi Jinping distinguished between “inflated” growth and “genuine” growth, and this is probably another set of names for the same distinction, but it’s worth noting that if GDP growth is “inflated” and not “genuine”, then this should not...

6/15
show up as GDP growth. If it does, it simply represents a miscalculating of GDP. There are many problems with calculating GDP even in the best of cases, but its whole purpose is to represent a reasonable proxy for the real development of a country’s productive capacity.

7/15
We see an even weirder form of this later on when the think tank proposes: “To ensure that the absolute gap between China’s and US economy not widen, as China’s GDP is 70% that of the US, China’s economic growth needs to outpace US by 50%."

8/15
They continue with an example: "If the long-term growth rate of the US economy is 2.4%, that of China should be kept above 3.6%.”

Can you really just choose what your GDP growth rate will be for such a non-economic reason?

9/15
For them, in other words, one purpose of GDP growth seems to be to prevent the reported gap between the US and Chinese GDPs from growing, in which case, they say, if US GDP grows by 2.4%, China must make its GDP grow by 3.6%.

10/15
But if China can choose its GDP growth, why settle for 3.6%? Why not choose 4.8% or, better yet, 10%? If GDP growth is a proxy for the economy’s productive capacity, and they can control it, then they should be growing GDP as fast as they can, regardless of US growth rates.

11/15
So why don’t they? Clearly it’s because they don't think recorded GDP growth in China is a proxy for real growth in the country’s productive capacity. They want a symbolically meaningful GDP growth rate, but nothing higher, perhaps because this would create...

12/15
too much “inflated” – i.e. non-existent – growth. The point of GDP growth, in this case, seems to be not to indicate whether or not China’s productive capacity is increasing but rather to keep China’s reported GDP from falling behind that of the US. GDP is just a score.

13/15
Imagine if Brussels "decided" that from now on the GDP of the EU must grow by 0.2 percentage points faster than whatever GDP growth the US manages so that the EU economy could catch up top that of the US.

14/15
We would dismiss that as an absurd decision – that's not how economies work – and if it were to happen, we would immediately assume that the EU’s GDP numbers have become distorted and no longer represent in the same way a proxy for the real underlying economy.

15/15
In that case its GDP would also no longer be comparable with that of other countries. That’s what I mean when I say that GDP has come to mean something different in China than it does in other countries, and why it is meaningless to compare them.