There is always intense debate about China's figures for economic growth. Forecasts by the Chinese leadership are generally eerily accurate, and many skeptics say that's because it's easy to be accurate in a planned, centralized and top-down economy.
Chinese Premier Li Keqiang in March announced a growth target of 6.5% to 7% for economic growth in 2016. But is its true rate of growth less than half that amount? Some economists believe so.
Charles Dumas, the chief economist at Lombard Street Research, believes that China’s economy is in fact growing at only 3%, according to the company’s proprietary research, and has been at that rate for quite some time.
"When we come to visit our clients in China they are very interested to hear what we’ve come up with because they know they're not getting a clean sheet from the local authorities," London-based Dumas tells me. "They announce a target, and then they fiddle the numbers to match the target."
Last year, Beijing predicted growth of “about 7%.” Its economy grew at 6.9%, the weakest growth in 25 years. Attempts to reform the Chinese economy and refocus it more on domestic spending than exports continue, moves likely to hamper short-term economic growth.
Of course, Premier Li appears not to believe China's forecasts either. He was embarrassed by a WikiLeaks release of a document from the U.S. State Department stating that in 2007 Li, the party chief of Liaoning at the time, told the U.S. ambassador that China’s gross domestic product (GDP) figures were “man-made” and unreliable.
Li, it appears, prefers to look at electricity consumption, cargo volumes on railways and bank loans. The Economist constructed a “Li Keqiang index” as a result.
Nowadays many economists (with a small e!) believe those numbers don't capture the true extent of the Chinese economy either, as the country makes that switch into services and greater consumption, and away from capital expenditure and manufacturing
"Those proxies simply catch a lot of physical activity and all the metal bashing that has gone on, with a massive amount of spending," Dumas says.
Commerzbank acknowledged these flaws in its report "How fast is China really growing?" Rail freight is hardly the only method of transport in China, the German bank notes. It attempted to capture a broader range of proxies for the Chinese economy, mapping a method similar to that used by the U.S. Conference Board to target both investment and consumption.
It notes that the official quarterly and annual GDP data show "little or no volatility to growth targets," and that unlike other large economies the data are rarely revised.
Its conclusion, reached last November, was that the official data were being "smoothed" rather than fabricated. It came up with a figure of around 5.5% last year, although there has clearly been further slowing since then.
China is getting the transition into a more service-driven economy to work, however. "There’s quite a way to go and this is probably a five-year process," Dumas continues. "The rebalancing is in fact taking place, which is desirable."
Prices, by the Lombard assessment of inflation, are rising about 1% to 2%, while wages are growing by 6% to 7%, leaving employees with a considerable amount more cash in their pockets. The savings rates in China are notorious, but much of that comes from corporations hoarding their profits, not individuals, Lombard believes.
Capital expenditure accounted for such a huge amount of GDP – 46% for 2014, the latest figures available – that it will simply take a lot of time for the reduction to work through the system.
The One Belt, One Road initiative first announced in 2013 appears to be a convenient way to carry out both a form of international relations by capital spending and also a good way of getting rid of a lot of the excess manufacturing capacity. Even the Chief Executive here in Hong Kong – already a service-driven economy with very little manufacturing – is so eager to get in on that act he mentioned "OBOR" 48 times in his most-recent policy address.
The size of China's economy differs slightly depending on whose count you look at, but is certainly a little over US$10 trillion. Now the question is, how long will it take to catch up to the United States, at US$17 trillion, and move into first place?
The answer depends, of course, on whose numbers you really believe.
