China's 1H 2017 Economic Review, part 1: GDP and other official stats

China’s economic year 2017 is half over (or half remaining, depending on whether you are a beizi-full or beizi-empty person) and I’d like to share a bit of analysis with you on the data so far.

If you believe all the major statistics (GDP, trade, fixed-asset investment, retail spending, etc.) about China’s first half 2017 economic performance, there’s only one reasonable conclusion: Everything is awesome!

To wit, China continues to perform as expected with no hard-landing of the economy. Yay! But of course, there’s a lot more to the story than that so we should look into the quality of the data as well as real economic activity, which I've been traveling around China to see first-hand.

First, just for reference and brief review, let’s get the usual suspect (data) out of the way. All of these figures are 1H 2017:

• GDP was up 6.9%, slightly above forecast (more on this below)
• Retail sales were up 10.4 percent, or 17.24 trillion yuan, faster than the rate of GDP growth but slowing versus a few years ago. Have Chinese consumers shopped ’til they dropped? Maybe in the malls, but online spending increased 33.4 percent year-on-year, to 3.1 trillion yuan (US$457 billion), with about 2/3rds of that physical goods and the other third services. That may sound like a lot, but it’s only 13.8 percent of the total retail sales of all physical goods offline and online. This for me highlights that eCommerce still has huge growth potential, and businesses like logistics can benefit greatly.
• Exports were up 15 percent, and imports up 25.7 percent, or 19.6 percent in terms of total trade, which is, frankly speaking, really awesome (no joke intended this time). China is now without doubt the world’s biggest trading nation and will remain so for quite some time. It also has an overall trade surplus of 1.28 trillion yuan (~US$188 billion) during this period, alleviating pressure on decreasing foreign reserves that we were seeing in 2016. The Belt and Road Initiative seems to be starting to show some positive effects for China's trade numbers, with aggregate imports and exports increasing to Russia, Pakistan, Poland, and Kazakhstan by 33.1 percent, 14.5 percent, 24.6 percent, and 46.8 percent respectively, according to the National Bureau of Statistics.
• Fixed-asset investment was up 8.6, percent and private sector investment up 7.2 percent. Nothing too surprising here, but slowing from previous years.
• Per capita disposable income rose 8.8 percent (or 7.5 percent less inflation) to 12,832 yuan a person.

Now I did say if you believe.  If you don’t believe the numbers, you are right to be skeptical since, after all, provinces such as Liaoning (where I am as I write this, in beautiful Dalian) admitted earlier this year to inflating results from at least 2011 to 2014, and the man who was in charge of China’s economic data for many years, Wang Baoan (whose name literally means ‘preservation of peace’ or, more colloquially, security guard) was investigated in 2016 and this year convicted and given a life sentence for corruption. Crazy, right?

So skepticism is warranted but we’ve known this for years. My first book way back in 2008 pointed out the perils of relying too much on China’s official numbers due to the many distortions including time lags, misreporting at the local level, and waste construction (building of ghost cities, for example).

But taking the headline GDP growth number at face value, does it mean anything?

Going on the basis of China’s 1H GDP growth rate of 6.9 percent, GDP appears to have bottomed out in 2016 at 6.7 percent. You may remember all the hand-wringing in global media about that being a 26 year low. So the 6.9 percent increase so far in 2017 represents a slight uptick and cause for minor celebration.

Still, I would not expect for much higher for the rest of 2017 and onward for two reasons: As long as China maintains growth above 6.5 percent, it will achieve the Centenary Goal of doubling GDP (from 2010 levels) by the time of the 100th anniversary of the founding of the Communist Party of China in 2021, as well as meet its 13th Five-Year Plan’s target of 6,5 percent annual growth. Second, China’s own media and ‘authoritative insiders’ are telling us to expect an L-shaped recovery, and that seems to be what we are getting.

Still, there are many out there who believe that China’s real GDP growth is far lower. Various estimates range from ‘barely breathing’ to ‘sub-optimal’ but to those extreme China bears I ask, can the whole country really be a giant Potemkin Village? My own travels throughout China during the entire first half of this year tells me it is not, but rather there is definitely a lot of economic activity going on. I’ve visited Changchun, Shenyang, Dalian, Xi’an, Chongqing, Chengdu, Changsha, Zhuhai, Hangzhou, and a number of other even lower-tier cities, and in all places I’ve seen economic growth, both in comparison to when I last visited those places, as well as relative to the big first tier cities. China, from what I can see (and the statistics support this), is growing much faster in its second-, third-, and fourth-tier cities. It's not just new buildings, its local people in restaurants eating, in malls shopping, on roads driving. They are doing something, and this is real, not just financial tricks.

We could get into that a lot more, but I think I'll wrap it up here and if there is interest will publish a followup or two later.

Let me know what you think in the comments!

Notes:

CNY/USD exchange rate used in calculation is 6.8

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Now ready, the next of the series of China's 1H17 economic review, Part 2 - Jobs and Entrepreneurship:

And part 3, on Overseas Direct Investment:

Want to read more ideas and analysis of China’s economy? Check out my new book on the subject, called The Man, the Plan, the Dream, the first book in the China 4.0 series, available now on Kindle ebooks.