The Economist Goes with the Truth on China’s Economy

For whatever reason, The Economist this week published an extremely honest and insightful article on the internal economy in China, signed only “S.R.” from Shanghai. Titled “From a very big base,” the article refutes all the hype around the West that China’s economy is falling apart. It even counters the rest of the press:

“Much of the analysis of China’s 2014 GDP data, which the government published today, has focused on the economy’s slowdown…. But, the focus on the slowdown seems almost myopic. China joined an exclusive club last year: its economic output exceeded $10 trillion, making it only the second country to achieve that feat (America reached this level in 2000). At market exchange rates, China’s economic output was $10.3 trillion last year, more than five times bigger than a mere decade ago, when it was $1.9 trillion.

“Moreover, the increase in China’s economic size means that slower growth now generates as much additional demand as its turbo-charged growth did just a short time ago. Last year’s growth, even with subdued inflation, yielded an extra 4.8 trillion yuan in GDP, almost exactly the same as in 2007, when growth ran to 14.2% and inflation was far higher.” They add that the economy, now based more on internal demand which increases services employment, “is doing even better at creating new jobs: it added 13.2 million urban jobs last year, compared with 12 million in 2007.”

But even more important, the article says, “China’s growth also appears to be slowly becoming better balanced. The big concern since 2009, when China unleashed a mammoth stimulus programme, has been the economy’s excessive reliance on investment and its sluggish consumption spending. Gross fixed capital formation accounted for 48.3% of China’s growth in 2011, well above the peaks of roughly 40% hit by South Korea and Taiwan when they industrialised last century.”

But in 2014, The Economist reports, “Consumption drove 51.2% of growth, up 3 percentage points from a year earlier…., while healthy wage growth means that labour’s share of China’s economic output rose last year.” Incomes rose 8% last year, faster than the GDP. Even the income gap between city and rural closed: “Rural incomes increased 9.2% last year on average, while urban incomes rose 6.8%.”

The Economist even acknowledges that the government figures are widely considered to have been truthful, adding that those screaming about “the slowest growth in years” should remember, “the Chinese economy is more than 25-times bigger than it was in 1990.”