Duncan’s Economic Blog

China’s Growth: The Debate

Posted in Uncategorized by duncanseconomicblog on July 22, 2009

I thought I’d managed to leave China behind last week but Michael Pettis has such a good post up, that I’ve been inspired to return to the subject.

Last week John Ross had a go at Pettis for questioning the merits of China’s economic system.

As John has outlined in a long series of posts, he fundamentally believes that the key to long term economic growth is investment and that China is successful because, by directly controlling investment it can control growth.

There might be something in this, certainly for developing economies. But as Chris has argued it may be the case that governments in developed countries have less control.  In other words the Chinese model, which is similar in some respects to the South Korean and Japanese route to prosperity, can succeed in increasing GDP from a low base but doesn’t work in an advanced economy. If true, then this would undermine the argument of tjhose who claim that the UK, for example, could learn a lot from China.

On this very topic, an email landed in my inbox this morning from a broker in Hong Kong:

  •  Next year, more and more analysts will start to question when, like Japan and S.Korea before ,  China’s semi-capitalist or authoritarian capitalist system becomes too ossified with job done in building up native industry.
  • There will be more and more focus, too, in the wake of the $1 trillion plus surge in bank loans, on China’s already hefty weight of NPLs—finance /economic  hernias or worse ahead? !! 

NPLs = Non-performing loans.

As I said last week, China can continue growing because, despite exports being down and domestic demand being weak, it can keep increasing investment (or fixed capital formation). This has collapsed in the West where private companies have little desire to invest during a recession and where even if they did want to then they would find it difficult to raise the finance. In China however state owned companies are ordered to invest and state owned banks required to lend to them.

What we really have here are two issues – one long term and one short term, but both linked. The long term issue is the one referred to above – can China keep growing by investing. John Ross would point to the amount of people living in poverty and the lack of infrastructure in much of the country and say yes. But surely we eventually hit a point when simply investing more and more is not enough. One can only add so much to capacity.

In the long rule, many argue, that China needs to consume more domestically. In other words Chinese workers need to save less and spend more. This would not only provide a driver for growth other than investment/exports but would also help to address the global imbalances that have plagued the economy over the past decade.

But in the short term there is the issue of how sustainable current Chinese economic actually is.  This is where Pettis comes in. He received an email from a fund manager which casts light on some of the ‘investment’ currently driving Chinese growth:

I don’t know how much you travel around China.  Tom and I do a fair bit, and most recently we were in Guiyang.  I thought I’d seen insane excess in the past – 200 thousand square meter malls completely empty next to apartment complexes with 40 thousand units and 30% occupancy rates, etc. etc.  But what we saw over there is rather hard to fathom.  It seems the Guiyang city mayor had the same idea as the Shenzhen mayor – to move the old downtown to a piece of undeveloped land. 

Of course Guiyang has a quarter the population and probably a quarter the per capita income of Shenzhen.  They built sprawling new government buildings about a 20-minute drive north of town.  And then the residential high rise projects started going up.  From driving around the area, Tom and I figured well over 100 20+ storey buildings.  

What was most distressing was that the development has been totally uncoordinated – a project with 15 buildings here, in another field two miles away a project with one building, another mile in another direction three buildings, sprawled over what was easily over 30 square kms. of farmland well north of town.  Every building we got close enough to see was either incomplete/under construction, or empty.  Our tone gradually went from “Haha, another one!” to “Oh my God, another one.”  We conservatively guesstimated that we saw US$10bn of NPLs in one afternoon.  The only buildings that were occupied were six-storey towers built to accommodate the peasants who had been displaced by the construction. 

 The fund manager asks:

What will determine whether China experiences a steady slowdown (possibly sub-par growth rates over next decade) vs. a crash of the economy.  Is controlling credit and SOEs enough to prevent a collapse of the typically most volatile component of the GDP – fixed asset investment?  If they can prevent a crash, then maybe it’s all worth it ? 

(SOE = State Owned Enterprises).  

Pettis answers at first with a good discussion on the nature of debt (with a plug for Minsky) before saying:

So to get back to the original question, will we see a crash, or a steady slowdown?  My guess is that there is significant and rising instability in the banking system’s liabilities, and far more government debt than we think, all of which should indicate a rising probability of a crash, but I think the ability of the government to control both the liquidity of liabilities (i.e. to slow them down, or to forcibly convert short-term obligations into longer-term ones) and the process of asset liquidation (at least within the formal banking system – I don’t know about the informal), suggests that if a serious problem emerges we will probably see more of a “Japanese-style” contraction: a long, drawn-out affair as bankrupt entities are merged into healthier ones, liquidations are stopped and selling pressure is taken off the market by providing cheap and easy financing, and so on. 

This is a long way of saying what I have often argued – that what we should expect in China is not a financial collapse but rather a long period – maybe even a decade – of much slower growth rates than we have become used to.  There are many reasons to expect a short, brutal collapse followed eventually by a healthy rebound, but government control of the banking system eliminates a lot of the inversion that in another country would force a rapid adjustment.  This is not a note of optimism, by the way.  As the case of Japan might suggest, the long, slow adjustment may be socially and politically more acceptable but it may also be economically more costly. 

Grim stuff for China, but for me the really interesting stuff comes at the end, and neatly ties together the short and the long term issue:

China needs to increase domestic consumption for stable internally driven growth.  You can’t increase domestic consumption if you’re buying real estate.  So this is yet one other way that this whole liquidity injection is preventing a transition to a consumption-based economy.  You really do wonder how long the Chinese will keep up this level of “pump priming”.  If they realize how much they’re screwing themselves for the next decade, the central government might just tighten liquidity. 

In other words China’s current policies are delaying a shift to a more sustainable model.

In the end this the question on China. On the one hand John Ross believes that the investment driven, state directed growth can not only be used during the transition from developing to developed economy but can continue from that point onwards. People such as Michael Pettis disagree. They worry that in the long term the model won’t work and in the short term it may be pushed to its limits.

For what’s it worth, I lean more towards Pettis. I do think that there should be more government involvement in the economy. The industrial policy agenda that I’m keen on would involve the government helping private industry to grow. It would involve government loans to firms in key sectors and it would necessitate much closer co-operation between government, industry and unions than we have currently.

But I don’t take it as far as arguing for the nationalistion of vast chunks of the economy. I recognize that there are times (such as in the UK transport and housing sectors currently) where private industry is failing to invest when it should be investing. I’m more than happy for the government to step in. But I also recognize the potential danger of the Chinese approach of investing simply for investing sake.

16 Responses

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  1. crossland said, on July 22, 2009 at 12:20 pm

    Why are they investing so much in property rather than education ,R+D, transport or Green tech ?
    Is it down to what employs the most people quickly ?

    I assumed they were going for green tech in a big way ,in some sense this is the big western fear , That they will use the crisis to leapfrog The US into pole position.

    Is that sector(and education) just too small capacity wise ?

    • duncanseconomicblog said, on July 22, 2009 at 12:29 pm

      Crossland,

      You’ve hit the nail on the head!

      Building stuff employs a lot of people.

      Now to be fair they are doing lots of useful investment too – paving roads, clearing shanty towns, etc. The question is how much is being wasted.

  2. dannyboy said, on July 22, 2009 at 12:53 pm

    Duncan, to what extent do you think some form of welfare underpinnings are required to build a consumer economy in this day and age?

    How else can you persuade people to save less without providing some kind of safety net? Presumably keeping up the illusion of very strong growth goes some way to heading off people’s concerns about spending, but thats not a sustainable foundation to achieve balance between saving and spending.

    If not welfare, then what other economic structures can be built upon to create a consumer economy?

    • duncanseconomicblog said, on July 22, 2009 at 1:04 pm

      Dannyboy,

      I think a welfare safety net is vital. Otherwise ofcourse people will save for old age/illness to a very large, potentially unbalancing, extent. China is making small steps forward in this area.

      Also important, in China’s case, is bank lending and currency policy.

      Chinese state owned banks are still geared towards lending to industry for investment. The personal loan market is under developed.

      Equally as long as China hold’s down the value of its currency – importing consumer goods will be less attractive.

      • dannyboy said, on July 23, 2009 at 11:45 am

        So china needs to build a welfare state to increase consumption. If the west needs to increase investment and decrease consumption does that imply a need to decrease welfare provisions in the west?

        ..presumably not, but there is an asymmetry here which is interesting.

        • duncanseconomicblog said, on July 23, 2009 at 12:34 pm

          Dannyboy,

          Welfare not’s the only variable though. Just beccause China’s welfare system is not enough, doesn’t mean ours is too much.

  3. […] Original post: China's Growth: The Debate « Duncan's Economic Blog […]

  4. Thomas J Hallam said, on July 22, 2009 at 9:37 pm

    Hi, great post, agree with many points but guess that your intimidating ‘crash’ will be swiftly overcome by a new period of supergrowth and prosperity. The whole world looks to China for the future. Buildings are the easy bit, building society, education systems and jobs is the long term investment.

    I have been watching this for a while now, would enjoy hearing you interpretation of my recent blog post on…

    http://www.thomashallam.co.uk/2009/07/dont-wake-the-sleeping-dragon/

  5. John Ross said, on July 24, 2009 at 12:20 pm

    Duncan:
    Thanks for your comments on my posts. Could I however just correct/clarify a couple of points so we can have the clearest discussion?
    You say I hold that by ‘directly controlling investment it [China] can control growth’. This formulation muddles up a couple of issues which should be disentangled. I favour the state owned sector being sufficiently large that it can counter any downturn in investment by the private sector in a crisis/severe economic downturn – as at present. I am, for fundamental reasons, against the former model of the USSR – without a private sector. State owned companies should also not be run managed by the state but run in many cases in competition with each other as well as in competition with private ones – i.e. not the old model of British nationalised industries.
    That is, basically in these key regards (not of course in all details), China has got it right. This is, however, a very big (and separate discussion) so I am only outlining these points so as to avoid any debate which doesn’t deal with actual positions.
    The main issue I wanted to deal with here is the sources of economic growth. You state: ‘As John has outlined in a long series of posts, he fundamentally believes that the key to long term economic growth is investment…. There might be something in this, certainly for developing economies. ‘
    The view that the main determinant of economic growth is investment is not at all some specific view of mine. It is the conclusion of a huge body of econometric research which conclusively disproves the old Solow/Kuznets theory that growth of factor inputs (capital and labour) was not the main determinant of economic growth but ‘technology’ was (more precisely what was known as the Solow residual but which was generally ascribed to technology). There is an enormous literature on this and the outcome is so decisive that the system of writing national accounts has been rewritten, both by the OECD and the US, to take account of the errors found in the Solow/Kuznets approach. For a long historical account, right up to date, of the development of this see Dale Jorgenson’s introduction to The Economics of Productivity Jorgenson, who is Professor at Harvard University, is probably the world’s leading expert on productivity and former President of the Econometric Society and former President of the American Economic Association – i.e. he is as mainlstream as you can get. As Jorgenson notes: ‘The traditional approach of Kuznets (1971) and Solow (1970)… has been replaced by the new framework presented in the OECD (2001) manual, Measuring Productivity… The OECD productivity manual has established international standards followed by Jorgenson, Ho and Stiroh… and the EU (European Union) KLEMS (capital, labor, energy, materials and services) study.’ The fact that investment is the key factor in economic growth is not some quixotic view of mine.
    The fact that factor inputs are the decisive determinant of growth, therefore, applies not only to underdeveloped but to developed economies. As Jorgenson concludes : ‘Input growth is the source of 80.6 percent of US growth over the past half century, while productivity growth has accounted for 19.4 percent.’
    For a comprehensive international overview of the factual econometric literature on economic growth see Jorgenson and Vu’s ‘Information Technology and the World Economy’. They note: ‘The growth trends most apparent in the U.S. have counterparts throughout the world. Investment in tangible assets… was the most important source of growth… The contribution of labour input was next in magnitude with labour quality dominant before 1995 and hours worked afterward. Finally, productivity was the least important of the three sources of growth.’ ‘Investment in tangible assets’ is, of course, what you or I would simply call investment.
    Therefore they conclude: ‘growth in the world economy and the G7 economies was dominated by growth of capital and labour inputs before and after 1995. Productivity growth played a subordinate role and fell considerably short of the contributions of capital and labour inputs to world and G7 growth.’
    Jorgenson and Vu note: ‘We allocate the growth of world output between input growth and productivity and find… that input growth greatly predominates.’ Precisely statistically: ‘The contribution of capital input to world economic growth before 1995 was 1.18 percent, slightly more than 47 percent of the growth rate of 2.50 percent. Labour input contributed 0.79 percent or slightly less than 32 percent, while productivity growth contributed 0.53 percent or just over 21 percent. After 1995 the contribution of capital input climbed to 1.56 percent, around 45 percent of output growth, while the contribution of labour input rose to 0.89 percent, around 26 percent. Productivity increased to 0.99 percent or nearly 29 percent of growth…. the contributions of capital and labour inputs greatly predominated over productivity as sources of world economic growth before and after 1995.’
    Jorgenson and Vu similarly found that that it was differences in inputs, not differences in total factor productivity, which predominated in explaining different levels of output per capital between countries:. ‘‘We find that differences in per capita output levels are primarily explained by differences in per capita input, rather than variations in productivity.’
    This decisive role of inputs compared to productivity applies not only to the world economy, or to less developed countries, but to the most advanced economies. Therefore a thesis that China can use large factor inputs now, but as it becomes a more developed economy this will be less relevant is not correct.
    More precisely Jorgenson and Vu note regarding the most advanced economies in analysing, ‘the contribution of capital input to economic growth for the G7 economies’: ‘Capital input was the most important source of growth before and after 1995. The contribution of capital input before 1995 was 1.28 or almost three-fifths of the G7 growth rate of 2.18 percent, while the contribution of 1.43 percent after 1995 was 55 percent of the higher growth rate of 2.56 percent. Labour input growth contributed 0.49 percent before 1995 and 0.46 percent afterward, about 22 percent and 18 percent of growth, respectively. Productivity accounted for 0.42 percent before 1995 and 0.67 percent after 1995 or less than a fifth and slightly more than a quarter of G7 growth, respectively.’
    There is an enormous literature on this subject, showing that capital inputs are the main source of growth – the above is only a tiny summary.
    There is, however, an evident conclusion of the fact that investment is the largest element in growth. Which is that reduction of China’s investment rate will necessarily lead to a slowdown in its economic growth. Furthermore it can be noted that after investment the second most important source of economic growth is the increase in the inputs of labour. In short, China’s strategy of large scale mobilisation of capital (that is a high rate of investment) and of labour is in line with the fundamental determinants of economic growth.
    The only argument against this would be that China’s investment, although large in quantity was used inefficiently. However numerous studies on China’s Total Factor Productivity by many different sources show this is not the case. Given that China therefore makes efficient use of its capital a high rate of investment is totally rational for its economic growth, Furthermore even when it is an advanced economy investment, as with the US, it will continue to be the largest factor in its economic growth – as it is in other advanced economies.
    This is only a summary of a large number of studies but I hope it helps to clarify the issues.

    • duncanseconomicblog said, on July 24, 2009 at 12:54 pm

      John,

      Thanks for the detailed reply.

      Sorry if I have misrepresented any of your views. I am aware of the literature in this field and broadly agree that it is investment that matters for long term growth.

      However that does not necessarily mean that in the short term China’s policies are entirely faultless.

      As you say – “The only argument against this would be that China’s investment, although large in quantity was used inefficiently.”. You go on to note that “However numerous studies on China’s Total Factor Productivity by many different sources show this is not the case. Given that China therefore makes efficient use of its capital a high rate of investment is totally rational for its economic growth”.

      Surely this is the crux of the debate? Whether or not China is investing inefficiently? You can cite studies showing that it is (in terms of TFP), whilst Pettis, and others, argue that it is isn’t. It’s hard to know, at present, whether the latest round of investment (and lots of people cite building projects in particular) will be efficient?

      More broadly I do agree with you when you write:

      “I favour the state owned sector being sufficiently large that it can counter any downturn in investment by the private sector in a crisis/severe economic downturn – as at present.”.

      I’m not sure that this requires state owned enterprises (although it might and I’ve no objection to that). It certainly does require the government to be prepared to intervene in investment – such as transport and construction in the UK at present.

  6. John Ross said, on July 24, 2009 at 1:40 pm

    Duncan,
    I don’t think you have attempt to ‘misrepresent’ my views at all, the purpose of a discussion is to get clarity and it is inevitable at the beginning it takes a bit of time to get it.
    I would, however, make one point. There have been, because it is a very important question, a large number of studies of China’s efficiency of investment and Total Factor Productivity (TFP). These come from the world’s top experts in econometrics such as Alwyn Young and Date Jorgenson. Even Alwyn Young, who is probably the world’s leading sceptic on the statistics of Asian growth, finds China’s TFP growth, the best measure of the efficiency of its investment, ‘respectable’. Jorgenson finds it high – indeed either first or second of any major economy in the world. Despite the fact that there is a huge literature on this subject, which supports the position I have outlined above, Michael Pettis and Martin Wolf don’t ever refer to it. Don’t you think that is curious?
    Instead we have anecdotal material of the type ‘look this is obviously a bad piece of investment’ – the latest being on real estate. Statistically this is nonsense because precisely having an average means there will be pieces of investment far below the average (sub-prime loans in the US!) counterbalanced by pieces of investment well above the average. So pointing to anecdotes of individual bad pieces of investment proves…. precisely nothing.
    But ignoring the many serious studies on the subject does indicate something – namely that your case won’t stand up to serious examination. Until Michael Pettis and Martin Wolf deal explicitly with (that is attempt to refute) the studies on the subject their claims cannot be treated as credible. And the more they go on producing anecdotes, without confronting the studies which eixist, the less credibility their arguments should be given.

    • duncanseconomicblog said, on July 24, 2009 at 3:56 pm

      Obviously I can’t speak for pettis or Wolf. I agree they should engage in this argument with this lieterature.

      But – the current stimulus, as far as I sam aware, is not covered by this literature. Indeed most studies I’ve seen (and China iis not my primary area) cover the period before 2006.

      So surely it is valid to ask if the current investment is efficient?

      I’m more than happy to agree that anecdote is not evidence. But we don’t have that much hard evidence on the lastest period.

      Also – good point re subprime.

      Stepping back, I do think we need to be clear that not all investment is good investment and not all fixed capital formation is the same. Capital is not homogenous.

      • duncanseconomicblog said, on July 24, 2009 at 3:59 pm

        John,

        Sorry – two more points that I’d be very interested in your take on.

        First – do you think the current stimulus is aimed at long term growth or simply holding down unemployment? (Both laudable aims).

        Second – in this discussion on investment, you might be interested in some other thoughts I had on this issue more generally:

        https://duncanseconomicblog.wordpress.com/2009/07/07/savings-investment-is-lm-an-answer-for-tim/

      • John Ross said, on July 24, 2009 at 5:03 pm

        As proper Total Factor Productivity (TFP) studies require very detailed statistics there is inevitably a lag before they can be produced. The latest I know take us up to 2005 – they show very high TfP for China (tied second highest in the world for any major economy with India – and Russia is only ahead of India and China because it was recovering from the catastrophic fall prior to 1998. However it is perfectly possible to do back of an envelope calculations for 2008 which will give orders of magnitude/rank order. (There are obviously no figures for 2009 yet in).
        I don’t know how much you followed of the exchange with Michael Pettis, as there were several exchanges, but if you don’t mind I’ll quote what I wrote there as it deals with the issue:

        ‘Let us compare the efficiency of China and the US. Doing so will also deal with the issue raised by JZhang regarding dates – i.e the claim that I am only dealing with earlier periods of China’s economic reform process and not the present one.
        Most comprehensively (i.e. ideally) one would use Total Factor Productivity (TFP) studies on China for such comparisons, of which many exist. As Chan-lee james acknowledges in his comment: ‘ the TFP numbers (including the World Bank, OECD and ADBI studies) are… good.’ As TFP studies require detailed statistical information to calculate, they do not bring us right up to date – although they do go up to 2005 so Chan-lee james claim that such data is ‘dated’ is, to put it mildly, somewhat exaggerated. However more quick and dirty methods get us as up to date as possible and reveal such clear orders of magnitude, and are also so clearly in line with the TFP studies, that they leave no doubt as to the situation.
        Chan-lee James lists a number of older TFP studies on China, all of which he acknowledges produce results for China which reveal ‘good’ performance. The most up to date comprehensive international comparative studies of productivity for China that I am aware of are those by Dale Jorgenson, of Harvard University, and Kuong Vu of the University of Singapore already citied. Danny Quah in autumn 2008 updated this work for some countries but his study is it is not as comprehensive in coverage.
        Jorgenson and Vu conclude China’s level of productivity compared to that of the US was 24.0% in 1989, 30.9% in 1995, 35.0% in 2000 and 40.3% in 2005. That is China’s productivity growth is significantly above that of the US, and there is no evidence that that China was slowing down in closing the gap in the recent period – it continues to gain at about 1% a year.
        Glancing at these figures it is obvious that the gap in productivity between China and the US is significantly narrower than the gap in output per head between them. The reason for this is that China actually slightly lags more in inputs (capital and labour) per capita compared to the US than it does in productivity per capita. Taking the same years as for productivity China’s inputs per capita, compared to the US, were 24.1%, 29.9%, 32.5%, and 39.5%. This fact that China’s lag is actually slightly more in inputs of capital and labour than it is in productivity is an evident supplementary reason why China is right to emphasise mobilising factor inputs.
        As already pointed out China is not at all untypical in this. The lag in developing countries compared to the US and other advanced economies is in general, as already noted, larger in terms of mobilisation of resources of capital and labour than it is terms of productivity. For example taking developing Asia as a whole Jorgenson and Vu conclude the: ‘shortfalls in output per capita, relative to the industrialised countries, are due primarily to input per capita, rather than productivity gaps.’
        Even within the G7 the productivity gap between the US and the other economies is narrower than the input of capital and labour gap. The superiority of the US is therefore relatively greater in its ability to mobilise large quantities of capital and labour than it is in productivity – that is the input gap between the US and other economies is greater than the productivity gap. I dealt with implications of this, regarding an exchange with Paul Krugman at Shanghai’s Jiao Tong University, elsewhere
        There is, therefore, data up to 2005 done to the highest statistical standards. This all shows the efficiency of investment in terms of total factor productivity in China – particularly compared to the US. But if that is still not recent enough, provided the differences are big enough, back of envelope calculations will give an order of ranking.
        In the five years up to the latest available IMF figures for China and the US, those for 2007, the rate of fixed investment in the US economy averaged 19.1% of GDP, annual average GDP growth was 2.8%, and the correlation of the two therefore shows 6.9% of GDP invested in the US generated 1% a year GDP growth. For China for the same period the equivalent figures are average rate of fixed investment 40.8% of GDP, annual average growth rate 10.6%, and 3.7% of GDP in fixed investment generated 1% GDP growth. Or to put it another way, China invests about twice as much as a proportion of GDP as the US but its rate of growth is four times as high – i.e. a far higher level of efficiency.
        I would immediate stress that such an extremely a ‘quick and dirty’ calculation is only to get a ranking order, and is not at all intended to claim statistical precision as with Jorgenson and Vu or the other studies noted. It is merely to get us as up to date as possible. But the difference is so huge that it leaves no doubt of the rank order. In terms of growth per unit of GDP invested the efficiency of investment in China is higher than the US – which is, of course, just another way of expressing the finding of all the studies, which use far more precise statistical methods, that total factor productivity growth in China is much higher than in the US.’

        I do not think all investment is good at all. The ‘import substitution’ model followed by both market (Argentina) and non-market (USSR) economies for example necessarily produced appallingly inefficient investment – at its worst, to do the same quick and dirty calculation as above, the USSR had to invest about 15% of GDP to produce 1% growth. That is a level two and a half times as low as the US today and four times lower than China today.
        Obviously proper statistics will alter the numbers I outline above but they won’t get round the basic qualitative fact. China invests twice as high a proportion of GDP as the US but its economy grows four times as fast. The efficiency of investment in China in generating growth is far higher than in the US – which already makes nonsense of the Michael Pettis Martin Wolf ‘inefficient investment’ thesis. Naturally I am not suggesting that investment in China is twice as efficient as in the US, proper statistical rigour will alter the difference, but it won’t eliminate the gap because it is much too big even on a quick and dirty calculation to do so.
        There is no doubt efficiency of investment is higher in China than in the US – the earlier TFP studies by Jorgenson and Vu found TFP growth in China about two and a half times that in the US.
        Obviously I don’t hold you responsible for the fact that Michael Pettis and Martin Wolf don’t engage with the large number of studies on the subject of efficiency of investment in China. I am simply pointing out that the fact they don’t should make anyone very suspicious that their case doesn’t stand up. And the figures that are available for 2008 make clear there was no change in rank orders then. To prove that there was a sudden collapse in the efficiency of investment in China in the first half of 2009 compared to other countries will be very difficult as GDP growth was still 7.1% whereas in most other major economies GDP ‘growth’ was negative!
        I am sorry to go into such statistical detail but the issue is a very serious one, of the path of the second largest economy in the world, so it needs to be dealt with on the basis of serious studies and not anecdotes on investment.

        Incidentally did you see the piece by Mark Weisbrot at the Guardian’s Comment is Free this morning? Although he cites me on one issue I had absolutely no contact with him about it and didn’t even know he was writing the article. But it is a good assessment of China’s stimulus package. Other people with a favourable estimate of China’s stimulus plan include Jim O’Neill, chief economist and Goldman Sachs, and Danny Quah of the London School of Economics. Those who think it is not going to work/is wrong, in addition to Michael Pettis and Martin Wolf, include Stephen Roach.
        I am not at all claiming that O’Neill, Weisbrot or Quah would have the same analysis of the stimulus package as I do but this is a very big issue and events are going to prove who is right fairly quickly (by which I mean the next months up to the next couple of years). So I think time spend debating this, and getting clarity on the issues involved, is very well spent. It involves very key issues of economic analysis.

        • duncanseconomicblog said, on July 27, 2009 at 9:12 am

          John,

          Sorry about the late reply – I have a self imposed ‘no blogs at the weekend rule’. Keeps me sane.

          Thanks again for the replies. And no problems citing so many statistics, you are correct that this is an issue worth discussing in detail.

          The last refuge of the ‘China sceptic’ is always to question whether their numbers are true. I’m prepared to accept that Chinese data is proberly not as good as US/European – given administrative difficulities, size, etc, although I doubt it is as inaccurate as many claim. What’s your view on this?

          • John Ross said, on July 28, 2009 at 6:04 am

            Duncan,
            Sorry for delay in reply – was out all day yesterday.
            China obviously is still developing its statistical services in various ways – it is a huge job as China has almost twice the total population of Europe. For example it states it is still trying to improve its seasonal adjustment and that’s why it produces year on year but not quarter on quarter figures for GDP. But they are more advanced than a comparable country such as India for example. Studies have been carried out of Chinese data by top statistical experts – as opposed to people making political claims. This has been done by both Alwyn Young and Dale Jorgenson for example who are probably the top experts in the field. They do not find Chinese statistics fundamentally inaccurate. So ‘not necessarily as precise as US or European but quite accurate enough to measure the key trends’ is a reasonable summary as you say.


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