Doubts hang over health of Chinese consumers, but not all economists are skeptical
Doubts have swirled around China’s official 2023 economic growth figures published this week, as some analysts struggle to reconcile government data with their own assessments.
China’s gross domestic product grew 5.2% last year, the National Bureau of Statistics reported Wednesday, in line with Beijing’s target of “around 5%.” The figure represents an improvement from 3% in 2022, when the country was restrained by strict zero-COVID policies.
Lifting those restrictions helped spark a rebound in consumption as China’s consumers returned to shops, restaurants and hotels. But the country’s ongoing property crisis — and a decline in exports, the first in seven years — hampered growth.
Chinese Premier Li Qiang gave a sneak peek at the 2023 figure during his speech at the World Economic Forum’s annual meeting in Davos, saying China had met its target without “massive stimulus.”
Questions over the official 5.2% figure stem largely from whether the consumption boom was enough to offset the drags on China’s economy.
“I think the skepticism inside China and outside China about the official data seems widespread and justified,” said Scott Kennedy, a senior adviser and Trustee Chair in Chinese business and economics at the Center for Strategic and International Studies in Washington.
Stronger than expected growth numbers help create a sense of economic momentum, which encourages private investment and household consumption, Kennedy said, but “the business community and investors in China are not convinced China has turned the corner.”
Before COVID, the business community gave the government the benefit of the doubt on this data partly because of the obvious and substantial growth occurring year after year, Kennedy said.
“That ambiguity is now typically interpreted in the other direction,” he said.
Shares fell in Shanghai and Hong Kong following the official data release on Wednesday, and Hong Kong’s Hang Seng Index closed Friday down 5.8% on the week.
Rhodium Group, a research firm with a focus on China, was particularly dubious of the official growth number, calling it “irreconcilable with evidence of general malaise and reactive policymaking that has piled up all year long.” Rhodium estimated the actual growth figure as closer to 1.5%.
Doubts about the reliability of China’s official economic data are not new. Capital Economics’ China Activity Proxy gauge — which attempts to track the economy by other components, including freight and passenger traffic, car sales and service sector electricity usage — suggests actual growth has undershot Beijing’s announcements since the start of 2022. But not all observers share Rhodium’s low assessment.
A group of 16 economists from within and outside of China surveyed by Chinese financial news provider Caixin estimated an average of 5.3% growth for China’s 2023 GDP, in line with Beijing’s number. The International Monetary Fund projected China to grow at 5% in its most recent world economic outlook from October.
“I tend to think it’s relatively accurate,” said Nicholas Lardy, a senior fellow with the Washington-based Peterson Institute for International Economics. “There’s a wealth of data released [this week], and in my view, it all hangs together,” he said, arguing that a substantial leap in disposable household income helps explain the spike in consumption.
That could be a positive sign for 2024, as China’s economy is expected to slow without the rebound seen in 2023 from removing COVID restrictions. The IMF forecasts the economy to grow at 4.2%.
Alongside Rhodium’s weaker estimation for 2023, the firm’s forecast for 2024 sits at 3%-3.5% as part of a broader structural slowdown China’s economy has entered following years of double-digit growth.
“We think the economy [in 2024] will look better than last year, but nothing like the pre-COVID growth rates that an improvement on China’s official figures would imply,” the firm said, with the caveat that greater than expected government stimulus could bring an unforeseen boost.
Assessing the state of an economy without using government data is done through various ways, including tracking indirect signs such as air pollution or nighttime luminosity in cities.
One popular method grouping electricity usage, rail cargo and bank loans came to be known as the “Li Keqiang index,” named for the metric preferred by the late premier as a gauge of the country’s growth.
But changes to the Chinese economy, including a shift toward the services sector, have made traditional real-world indicators less reliable.
“It’s very difficult to really get a sense of the entire economy independently. It’s too large,” CSIS’s Kennedy said, adding that “you just need to use a lot of different sources of data, look at high-frequency data and draw your own conclusions.”
Beijing also has become less transparent about what data it releases, as when it decided to stop publishing youth unemployment data last year when the figure reached a record 21%. This week, that information was released again for the first time since last summer, using a new methodology that calculated the rate to be 15%.
Regardless of the accuracy of official data, the cost of the uncertainty and Beijing’s perceived lack of transparency falls mostly on China itself.
“Policymakers can’t resolve economic problems because doing so would publicly acknowledge that such problems exist. It also disincentivizes investment from global businesses,” Rhodium said in its research note.