This is the context in which to frame the bureau’s reports: GDP data for the fourth quarter and last year as a whole were going to outperform whatever expectations were set. GDP growth was thus reported at 7.9 percent for the quarter and 7.8 percent for the year, pushing annual output higher than US$8 trillion — more than half of the US’. Other measures suggest that annual growth was lower than this, but the fourth-quarter growth figure is close to being accurate.
More importantly, household income in both rural and urban areas outpaced GDP. Strong output growth in the middle of the past decade contrasted with comparatively weak income growth — a problem that is no longer visible. Income inequality is now the problem, which is not reported.
Figures on the components of GDP are similarly dubious. Fixed investment appears to be slower, which is welcome because it is excessive. Consumption was said to generate more than half of China’s GDP. However, fixed investment still rose faster and was far larger than retail sales, while the national trade surplus grew three times faster than retail sales.
One cannot see consumption-driven growth in the numbers published by the bureau. Trends in industrial production and the purchasing managers’ index are also incompatible. GDP is not too far off, but more important indicators are muddled.
The typical observation made about China’s economy is that it has been weakening because reported GDP growth has slipped from 13 percent to below 8 percent. This is a symptom, not the disease, and GDP is not a good measurement of health.
China’s economy began faltering while GDP growth was still accelerating. With the arrival of a new government in 2003, the imbalances now plaguing the economy first manifested as market reform faded and fixed investment spiked. Growth in fixed investment jumped 10 percentage points in 2003 and has not returned to its 2002 level.
The gap between fixed investment and gross fixed capital formation — the world’s investment measure — has widened, suggesting greater waste.
Genuine Chinese consumption is weaker than suggested by retail sales. The performance is not weak in absolute terms; it simply cannot keep pace with investment.
Some observers claim that consumption has been underestimated, but without carrying out a similar evaluation of other indicators and distribution over time this says little.
More investment than consumption leads to a parallel imbalance between supply and demand. For instance, more than one-third of Chinese shipyards received no orders last year. Officially, auto sales weakened last year — though this data is spotty — while auto capacity continues to expand. When demand is inadequate, high investment breeds debt rather than expansion.
Rising debt indicates that the country’s economic performance is unsustainable. China’s economic trend is hard to establish because debt is often treated as a state secret. A Chinese Academy of Social Sciences corporate survey put the 2011 debt-to-asset ratio at 105 percent, the highest among the 20 countries evaluated in the survey. This bottom-of-the-list debt performance came after years of record-beating official GDP growth data.