Finance and economics: China's economic data, Right on target. Is growth really 7% a year?
It all seems a little too perfect to be true. The Chinese government set a growth target of “about 7%” this year; the economy, ever responsive to the Communist Party's needs, has hit exactly that number for two quarters in a row. Cue a chorus of skepticism.
The first quarter did look suspicious. Growth in industrial production was the weakest since the depths of the financial crisis; the property market, a pillar of the economy, crumbled. China reported real growth (ie, after accounting for inflation) of 7% year on year in the first quarter, but nominal growth of just 5.8%. The only way to arrive at the higher real figure was to put the GDP deflator, a measure of inflation, at -1.1%.
That implied the economy suffered broad-based deflation, a bizarre claim given that consumer prices rose by more than 1% at the same time. Had the GDP deflator been more accurate, Chang Liu and Mark Williams of Capital Economics reckon, real growth in the first quarter would have been one or two percentage points lower.
The data for the second quarter are more credible. In nominal terms, growth rebounded strongly to 7.1%. The corollary is that the GDP deflator is now 0.1%, a reading that is much more consistent with rising consumer prices and falling producer prices.
There were signs of some tampering: without explanation, the national bureau of statistics cut the quarter-on-quarter growth rate in the second quarter of 2014 to 1.9% from 2%. That doubtless flattered the data for the second quarter of this year by lowering the base for comparison. But the impact is small: a few tenths of a percentage point, perhaps.
What is more, the sources of Chinese growth in the second quarter were less mysterious than in the first. Although investment continued to slow, services accelerated.
Industry grew by 5.9% year on year in the second quarter, down from 6.4% in the first quarter. In contrast, services jumped to 8.9% growth from 7.9% in the first quarter. That matters since services now account for a larger share of Chinese GDP than industry. This acceleration in services is unlikely to last.
It derives to a large extent from the soaring stock market, which boosted financial firms. That lift has presumably become a drag in recent weeks as share prices have dived. Transient as it was, however, China's statisticians did not invent the financial boom.