China will soon release full-year economic growth figures for 2017. Don’t be surprised if the headline number is 6.7%. After all, that is the target. Economic output tracked 6.9% above last year’s level throughout Q1 and Q2 of 2017, falling to 6.8% in Q3. With China’s leaders talking up the “quality” rather than the quantity of economic growth, it’s a safe bet that growth will be allowed to glide down toward the 6.7% target for the final quarter.
One of the reasons China’s quarterly growth figures are so eerily smooth is that China reports headline quarterly growth as a comparison to the same quarter in the previous year. Most other countries annualize each individual quarter’s rate of growth, producing the appearance of much greater quarterly variability.
Annualizing China’s quarterly growth numbers for the first three quarters of 2017 produces a much more reasonable quarterly track record. On an annualized basis, China’s real GDP growth rates for the first three quarters of 2017 were 5.7% for Q1, 7.4% for Q2, and 7.0% for Q3. Put those figures together, and China needs an annualized growth rate of 6.5% in Q3 to hit its overall target of 6.7% for the year.
And it just so happens that China’s full-year growth target for 2018 is also 6.5%. So expect China’s 2017 Q4 growth to come in at 1.6% for the quarter (equivalent to an annualized rate of 6.5%), down from 1.7% in Q3, putting China right on target to grow 6.7% for the full year 2017 and setting the pace for 6.5% in 2018. Simple.
China wasn’t always so good at hitting its growth targets. Just two years ago, in early 2016, China’s economy was going haywire. Exports were falling, business indictors were down, and consumer confidence was at an all-time low. The economy was reportedly still growing at 6.9%, but no one seemed to believe it. China seemed headed for its first recession in decades.
The solution? Fire the statistician. The forthright head of China’s National Bureau of Statistics, Wang Baoan, was removed from office and charged with corruption, the handy catch-all crime of Communist Party politics. Unsurprisingly, Wang pled guilty, confessing his crimes (accepting bribes and demanding sexual favors) and apologizing to the court. In recognition of his contrition, he received the “lenient” sentence of life in prison.
Whether or not Wang was actually guilty is anyone’s guess; corruption and sexual harassment are rife in China’s top circles. What we do know is that with Wang out of the way, China’s statistics improved dramatically. And it didn’t take long.
Wang’s successor, Ning Jizhe, was appointed on March 4, 2016. That month, all fourteen of China’s manufacturing indices shot up, including the all-important purchasing managers’ index (PMI). Seven out of ten non-manufacturing indices improved as well. These may all be real changes; UK-based Nielsen reports rapidly rising consumer confidence in China, and no one doubts Nielsen’s integrity. But the timing is suspicious.
Not just the timing. Ning Jizhe isn’t just the Director of China’s National Bureau of Statistics. He is also the Vice Chairman of the National Development and Reform Commission (NDRC), the body charged with managing the economy. Ning is reportedly Premier Li Keqiang’s man in the NDRC, focusing on big-picture economic policy. That’s right: the man who sets China’s GDP targets is also the man who measures China’s economic performance. It doesn’t get better than that.
China has pulled out all the stops to keep its economy growing, at least until the 2021 centenary of the founding of the Communist Party of China. It has flooded the economy with government spending and bank credit in a desperate bid to prevent a recession that would compromise its reputation for economic miracle-making. So much for “quality” growth. If all else fails, China’s disciplined leadership can always massage the numbers to suit its goals. Or, if it has to, just make them up.