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

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More from @michaelxpettis

14 Jan
China's exports were up 20.9% in December, more than most analysts expected, while its imports were up by 19.5%, which was much less than most analysts expected.
The result: a whopping $94.5 billion trade surplus, the biggest monthly trade surplus in Chinese history and perhaps the biggest ever seen anywhere. Equal to 7% of Chinese GDP for the month, it implies a deficit for the rest of the world of nearly 1.5% of its collective GDP.
Once again analysts have been surprised (astonished, more like it) by the size of China's trade surplus, mainly because they insist on seeing trade incrementally rather than as a systemic outcome.
Read 6 tweets
12 Jan
China's aggregate financing (TSF) rose by RMB 2.37 trillion in December, or by 0.8% of November's outstanding. This is in line with the average monthly increases in the second half of the year.
TSF was up 10.5% in 2021, and as expected well below the 11.8% annual increase of the past five years. 2020's contraction in "high quality" growth (consumption, exports and private-sector investment), required a surge in debt to deliver a positive GDP growth rate.
In contrast because of a partial rebalancing, however, 2021 saw a very high share of "high-quality" growth. This is what allowed Beijing to clamp down so heavily on the property sector, one of the main sources in China of burgeoning debt.
Read 4 tweets
12 Jan
While the world is trying to expand transfers to households to support struggling demand, Beijing is slashing pay packages for civil servants while at the same time calling for local governments to accelerate infrastructure spending.
scmp.com/news/china/pol… via @SCMPNews
"Noting that China has lowered taxes and fees by as much as 8.6 trillion yuan since 2016," the SCMP reports, "Li Keqiang said the process must continue so the government could give more benefits to businesses and energise the economy.
Beijing, in other words, is determined to reduce waste on the demand side while increasing waste on the supply side. This suggests that for all the talk of rebalancing, dual circulation and common prosperity, Beijing finds it difficult even to conceptualize a policy shift.
Read 4 tweets
12 Jan
"The valuation of bank stocks has been tepid in recent years amid an economic downturn, the widespread liquidity crisis among real estate developers and other factors," according to Caixin.
"The average price-to-book ratio of the banking sector is 0.6 to 0.7, and only a few banks have a price-to-book ratio greater than 1, such as Bank of Ningbo Co. Ltd., China Merchants Bank and Ping An Bank."
The price-to-book ratio of Chinese banks has dropped in fifteen years from nearly 4 to well below 1. This tells us something about the economy's expected growth. In a 2007 paper I argued that an option framework makes clear that in some cases the prices of bank stocks...
Read 4 tweets
11 Jan
"Mr. Dalio said he thought that through its own system, the U.S. 'needs more common prosperity, a lot of countries do.' His presentation showed U.S. wealth and income gaps at heights last hit in the 1930s."
wsj.com/articles/bridg… via @WSJ
The irony – which I think passed over Dalio – is that while the US (and many others) would benefit greatly from common-prosperity type programs that redistribute income from the extremely rich to the middle and working classes, these won't benefit China nearly as much.
That's because the problem in China is not just income inequality within the household sector but, far more importantly, the huge disparity between the share government receives and that received (directly and indirectly) by the household sector.
Read 4 tweets
11 Jan
people are often confused about the impact of automation on employment and the consumption balance. One argument is that automation and robots will reduce the number of workers needed, and so also reduce the consumption share of GDP.
scmp.com/economy/china-… via @scmpnews
One of the experts cited here makes this point: "Automation helps upgrade manufacturing and the supply chain, but it does little to help domestic consumption and the ageing problem.”
This isn't really true. Automation and robots increase the productivity of workers, and if wages keep pace with this increase in workers' productivity, employment and consumption will rise in line with production.
Read 4 tweets

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