Practical analysis for investment professionals
04 August 2015

Can China’s GDP Numbers Be Trusted?

There has been a great deal of speculation over the years as to whether official economic data from China is reliable.

In particular, China’s GDP figures have come under increasing scrutiny. Are the suspicions warranted? Or are they overblown?

Carsten Holz, professor of economics at the Hong Kong University of Science and Technology, sat down recently with Laurel Teo, CFA, director of society advocacy engagement at CFA Institute, to discuss common misconceptions about China’s GDP figures and its future economic outlook.

“The most misunderstood thing (about China’s GDP data) probably is that the growth rates are overestimated,” Holz says. “If you look at the deflators that they’re using to deflate the nominal output, they are overestimating deflators and thereby underestimating real growth. So, if you’re trying to reconstruct the real growth rates using official price data, we came up with higher growth rates than the national growth statistics.”

Yet Holz does not believe that these discrepancies mean the data is incorrect. “There are so many uncertainties about Chinese data . . . that we have a wide range of plausible final values for real growth rates,” he says. “You have to trust them, because if you do double-checks you can come up with all kinds of other numbers, and they can go both ways . . . having looked at how they proceed, the choices they make, I do trust that this is a plausible growth rate.”

Holz also says that China’s approach to calculating GDP data is on par with other countries, including the United States. “(China is) updating the procedures. Every time they do an economic census and a benchmark revision, they come up with what they think is the best value, and then they make retrospective revisions — not very different from other countries, not very different in scope from the United States”

As for the future, Holz sees a gradually slowing growth rate: “The next 3–5 years, 6%–8% growth. If you ask 20 years down the road, it’s probably more like 3%–5% growth, and that assumes that there’s no major disturbance.”

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All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.

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