Try keeping it up.

Photographer: Peter Parks/AFP/getty images

China's Year of Maybe-Real 7% Growth

Justin Fox is a Bloomberg View columnist. He was the editorial director of Harvard Business Review and wrote for Time, Fortune and American Banker. He is the author of “The Myth of the Rational Market.”
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China is going to meet its economic growth target of about 7 percent for 2015, Sheng Laiyun of the National Bureau of Statistics reassured the world a few days ago. “China's economy,” Sheng said, “still has strong intrinsic tenacity, huge potential and ample leeway.”

He’s probably right about the tenacity and the potential. I’m not exactly sure what he means by “ample leeway.” Could he be saying the statistical agency has the leeway to tweak the numbers to make sure they work?

The suspicion that China’s economic statistics are as reflective of aspiration as of reality has come up a lot this eventful year. Here are three fun statistical tales from the past couple of months:

  • When an interviewer from the China Times asked economist Liu Wei, president of Renmin University in Beijing and an adviser to Chinese President Xi Jinping, about claims from outside analysts that Chinese growth was closer to 4.5 percent, he responded, according to a translation by Chinascope: “That may be the real number. To be honest, even if it is 4.5 percent or 5 percent, do not be afraid. The key is whether the economy can actually endure it.”
  • Several local officials from Northeast China told Xinhua news agency that reports of sharp recent drops in economic growth in their provinces came about because they’d been faking the numbers before. "If the past data had not been inflated, the current growth figures would not show such a precipitous fall," one official said, according to China Daily.
  • Two independent measures of Chinese industrial production, the flash purchasing managers index compiled by Markit Economics and the China Minxin PMI compiled by China Minsheng Banking Corp. and the China Academy of New Supply-side Economics, were discontinued suddenly after showing much sharper declines than official PMI readings.

The concern isn’t so much that China’s economic strength is largely fictional, as was the case with the Soviet Union before its fall. A new “Data Quality Index” from World Economics puts China in a halfway-respectable 40th place for the reliability of its gross domestic product data, just behind Mexico and ahead of Croatia.

But in its desire to maintain the perception that it has everything under control, the Communist Party of China does seem to have been at least smoothing the numbers. The most obvious parallel for a Western reader, as I wrote in October, is “that of a corporation that’s been on a long run of consistent earnings growth, but is showing signs of sputtering.”

At corporations, such situations are often precursors to accounting frauds, dumb mergers, breakup attempts by activist investors and other forms of upheaval. For a country under one-party rule, it’s harder to say what might happen. There have been a few times this year when China’s rulers seemed to be losing their grip -- mostly during the precipitous rise and then fall of the Shanghai and Shenzhen stock markets in the spring and summer -- but lately they appear to have regained control. The Shanghai composite is up 12 percent on the year:

So what are we to make of this weird, weird year for China?

Sheng Laiyun of the National Bureau of Statistics says it’s all going to work out, and I’m not sure that I have a better answer. Still, I’ll give it a try. Last year on the question-and-answer site Quora, someone asked, “Why do some non-Chinese claim to understand China when most Chinese don’t understand their own nation?” There were a lot of interesting responses; my favorite came from Clay Shirky, the noted Internet theorist who has been teaching at New York University’s Shanghai campus. Shirky concluded that:

[A] linear model that treats "understanding" as a thing that people have more or less of doesn't make much sense, especially for something as complex as a country. There are people who overstate their comprehension in every field, but there are also some areas where having a spectator's perch, access to additional information, and freedom from local pieties allows outsiders to understand things the locals often don't.

From my faraway spectator’s perch, the main thing that I think I understand that maybe people in China don’t is that countries going through rapid economic development inevitably run into trouble. It might be a financial panic, a political crisis, a period of stagnation or all three. This trouble doesn’t have to mean an end to progress, but it does bring an interruption, and often a change of course.

China’s economic policy makers have been astute students of what has worked and what hasn’t in other countries, and they’ve definitely found a way around the financial-crisis-every-decade-or-so cycle that characterized economic development in the U.K. and the U.S. during the 19th century. Annual GDP growth has topped 7 percent every year since 1991 and it looks like, officially at least, it will hit that target again in 2015. But continuing at or near that pace, uninterrupted, for years and years to come? I don’t buy it.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author of this story:
Justin Fox at justinfox@bloomberg.net

To contact the editor responsible for this story:
James Greiff at jgreiff@bloomberg.net