Archive for ‘GDP’

15/02/2016

Home on the Range, Chinese Style – China Real Time Report – WSJ

It’s a small step in the right direction, driven more by necessity than enlightened policy.

That’s the view from economists on China’s move this year to put forward a range for its economic growth target rather than a single number. The head of the National Development and Reform Commission, China’s top economic planning agency, said early this month that the 2016 target is likely to be “6.5% to 7%,” the first time in recent memory that China has used such a band. The target is set to be officially released early next month when China’s parliament convenes.

For decades, Beijing beat its annual growth targets without breaking a sweat. More recently, as growth decelerated faster than expected, it has faced growing difficulty hitting its number, so a range provides more wiggle room.

This follows Beijing’s decision to add an “about” to both its 7.5% target in 2014 and its 7% target last year. The adjective proved handy when the actual growth figures wound up falling short both times.

The risk this year, economists say, is that even a 6.5% to 7% target may be too high, heaping pressure on local officials to artificially stimulate growth in ways that increase debt and blunt reform initiatives.

This is also the year that China sets a growth target for the coming five years that’s expected to be 6.5%, in line with a Communist Party goal of doubling per capita income by 2020 over 2010 levels. This benchmark also may be high, analysts said, given China’s many structural problems and so-far limited appetite for reform.

“If they really stick to the 6.5% target by adopting unsustainable policies, throwing up more credit, they face a bigger problem with debt down the road,” said Fitch Ratings Inc. analyst Andrew Colquhoun. “Many emerging market problems in the past have happened when countries veer off and start to believe their own hype on what growth is possible.”

Source: Home on the Range, Chinese Style – China Real Time Report – WSJ

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08/02/2016

GDP data to show economy racing, realities less rosy | Reuters

India will release data on Monday showing it remains one of the fastest growing economies in the world, but economists are struggling to reconcile that rosy picture with ground realities like weak exports, investment, and flat corporate order books.

Labourers works at the construction site of a residential building in Mumbai, India, February 4, 2016. REUTERS/Shailesh Andrade

The median estimate from a Reuters poll of economists put GDP annual growth at 7.3 percent in the quarter through December, just below 7.4 percent in July-September.

If the data comes in line with expectations, it would be faster than 6.8 percent growth posted by China in the same quarter.

However, very few economists are ready to take the official data at face value, reckoning that it overestimates the pace of expansion in Asia’s third-largest economy.

“There are inconsistencies between the picture presented by new GDP series and many other tried and trusted real activity indicators,” said Rupa Rege Nitsure, group chief economist, L&T Finance Holdings, Mumbai.

Until a year ago, India was struggling to break out of the longest stretch of below 5 percent growth in a quarter of a century. But a change made a year ago to the method GDP is calculated transformed the lumbering South Asian giant overnight into one of the fastest growing major economies.

Yet, merchandise exports have been falling for the past 13 months. Rural spending is subdued on weak wage growth and two successive droughts.

Corporate order books are flat. While finished goods inventory to sales ratio is showing no improvement, raw material inventory to sales ratio has worsened.

With factories running nearly 30 percent below their capacity, firms are not in a hurry to invest in new plants and machinery. Festering problem of bad loans, meanwhile, has impeded credit flow and delayed full transmission of interest rate cuts.

There are some encouraging signs, however. Robust growth in indirect tax receipts suggest a nascent revival in manufacturing sector. Foreign direct investment is up. Low inflation, thanks largely to a crash in global commodity prices, has helped bolster urban demand.

Source: GDP data to show economy racing, realities less rosy | Reuters

28/01/2016

Grossly Deceptive Plans (GDP) | The Economist

ON JANUARY 19th China declared that its gross domestic product had grown by 6.9% in 2015, accounting for inflation—the slowest rate in a quarter of a century.

It was neatly within the government’s target of “around 7%”, but many economists wondered whether the figure was accurate. Online chatter in China about dodgy GDP numbers was fuelled a week later by the arrest of the man who had announced the data: Wang Baoan, the head of the National Bureau of Statistics. The country’s anti-graft agency accused him of “serious disciplinary violations”, a euphemism for corruption. But beyond all the (justifiable) doubts about the figures lies another important question. That is: why does China have a GDP target at all?

It is the only large industrial country that sets one. Normally central banks declare specific goals for things like inflation or unemployment. The idea that a government should aim for a particular rate of output expansion, and steer the economy to achieve that, is unusual. In the case of China, which is trying to wean its economy off excessive reliance on GDP-boosting (but often wasteful and debt-fuelling) investment, it is risky. It is inconsistent with the government’s own oft-repeated mantra that it is the quality of growth that matters, not the quantity.

In the past, setting a target may not have made much difference. For all but three of the years between 1992 and 2015, China’s growth was above target, often by a big margin. A rare period when targets seemed to affect the way officials tried to manage the economy was from 2008 to 2009, when growth fell sharply (see chart). It would be hard to argue that targets themselves have been responsible for China’s overall (impressive) record of growth in recent decades.

Now, however, the economy is slowing. This is inevitable: double-digit growth is no longer achievable except at dangerous cost (total debt was nearly 250% of GDP in the third quarter of 2015). But the government is worried that the economy may slow too fast, and that this could cause a destabilising surge in unemployment. So it has been ramping up investment again, and goading local governments to do the same by setting a high growth target.

For a while there were signs that the leadership itself had doubts about the merits of GDP target-setting. In 2013 Xinhua, an official news agency, decried what it called the country’s “GDP obsession”. By the next year, 70 or so counties and cities had scrapped their targets. In 2015 Shanghai joined them, becoming the first big city to break with orthodoxy (each level of government sets its own GDP target, often higher than the national one). Liu Qiao of the Guanghua School of Management at Peking University says the central government ought to follow suit.

Last year there were hints that it might. The prime minister, Li Keqiang, said the government would not “defend [the target for 2015] to the death”. And in October, talking about the government’s work on a new five-year economic plan (which will run from 2016 to 2020), President Xi Jinping avoided mentioning a number. That raised expectations that targets might at least be downplayed, if not abandoned.

They have not been, however. An outline of the five-year plan, unveiled in November, contained the usual emphasis on growth. And Mr Xi appeared to change his tune, saying expansion must average at least 6.5% a year until 2020. Many economists believe that will require yet more debt-inducing stimulus. A GDP target for this year is all but certain to be announced, as usual, at the annual session of the legislature in March (when the five-year plan will also be adopted). It will probably be higher than 6%. Speculation that the government might set a target range in order to give itself more policymaking flexibility (as the IMF and the World Bank have urged) has ebbed. In December some national legislators complained that local governments were busting their debt ceilings because there was “still too much emphasis on GDP”.

So why is there still a target? The reasons are political. In a country so large, central leaders are always fearful of losing their grip on far-flung bureaucrats: setting GDP targets is one means by which they believe they can evaluate and control those lower down. Local officials are also judged by environmental standards, social policies and what the Communist Party calls “virtue”—that is, being uncorrupt and in tune with the party’s latest interpretation of Marxist doctrine. But GDP is usually the most important criterion, having the attraction of being (roughly) measurable.

Source: Grossly Deceptive Plans | The Economist

15/10/2015

Nobel Prize Winner Angus Deaton on the Chinese and Indian Miracles – China Real Time Report – WSJ

Angus Deaton, the economist who won a Nobel Prize this week, has spent much of his career trying to measure poverty and progress in India and China.

He won the Royal Swedish Academy of Sciences award in economics by devising systems to understand consumption and poverty using household surveys and number crunching.

“Deaton’s focus on household surveys has helped transform development economics from a theoretical field based on aggregate data to an empirical field based on detailed individual data,” the academy said.

His decadeslong deep dive into data on the poor, their spending habits and their health gave him a surprisingly upbeat assessment of human progress, largely owed to the great strides that have been made in China and India. His book, “The Great Escape: Health, Wealth, and the Origins of Inequality,” documented why the world is a better place to live than it used to be.

A recent World Bank report suggested that more than one billion people might have been lifted out of extreme poverty already this century. Most of that progress was in China and India.

Here are a few of the things Mr. Deaton said in his book about the massive shifts in China and India that are changing the world.

On what China and India have taught us … “China and India are the success stories; rapid growth in large countries is an engine that can make a colossal dent in world poverty.”

On infant mortality in India and China … “India’s decline in infant mortality has been remarkably steady–not at all responsive to changes in the rate of growth–and the absolute decline from 165 out of every 1,000 babies dying in the early 1950s to 53 in 2005-10, is actually larger in absolute numbers than the decline in China, from 122 to 22.”

On how Chinese and Indian bodies have evolved with the economy… “Indian children are still among the skinniest and shortest on the planet but they are taller and plumper than were their parents or grandparents … Indians too are now growing taller decade by decade, though not as quickly as happened in Europe, or indeed as is now happening in China, where people are growing at about (the now familiar figure of) a centimeter every decade. Yet the Indian escape is only half as fast–about half a centimeter a decade–and that figure is for men; Indian women are growing too, but at a much slower rate, so that it takes them sixty years to grow a centimeter.”

On a better measure showing how China and India have lifted the world … “Although China and India are only two countries, their rapid growth at the end of the century meant that around 40% of the world’s population lived in countries that were growing very rapidly … (Thus) the average country grew at 1.5% a year in the half century after 1960, but the average person lived in a country that was growing at 3%.”

On how long the miracle can continue …  “At least over the past half-century the fast-growing countries in one decade have tended not to repeat their performance in the next or subsequent decades. Japan used to be the place that had perpetually high growth, until it didn’t any more. India, now one of the most rapidly growing countries, seemed capable of only slow growth for much of its existence, not to speak of the half-century that preceded its independence, when there was no growth at all. China is the current long-run superstar, but by historical standards the longevity of its growth spurt is extremely unusual.”

On the difficulty of defining poverty …  “In India, as in any country where a substantial fraction of the population is poor, there are millions of people who are close to poverty, either just above or just below the line … We don’t really know where the line should be, yet its precise position makes a huge difference. To put it more brutally, the truth is that we have little idea what we are doing.”

Source: Nobel Prize Winner Angus Deaton on the Chinese and Indian Miracles – China Real Time Report – WSJ

12/06/2015

India to Widen Its Growth Lead Over China, World Bank Says – India Real Time – WSJ

India will continue to be the world’s fastest growing big economy and expand its lead on China over the next two years, the World Bank said Wednesday.

The bank expects global growth to slow this year, only to rebound next year. However, it expects India’s gross domestic product expansion to accelerate to 7.4% this calendar year, 7.8% next year and 8.0% in 2017.

Over the same three years, the multi-lateral lender predicts China’s growth to slow from 7.1% this year to 7.0% in 2016 and 6.9% the year after that.

While, India’s GDP expansion was faster than China’s during the third quarter of last calendar year and the first quarter of this year, it looks as if 2015 will be the first full calendar year India has outpaced China in decades.

Much of India’s progress on paper has more to do with a radical and controversial rejigging of how it calculates GDP, economists say.

To continue to outpace China—and improve the lives of India’s own billion-person populace—the South Asian nation needs to work harder to revamp its economy and build infrastructure, the World Bank said.

“To the extent that credible reform agendas boost investor sentiment, they will also help create a virtuous cycle of stronger investment (including foreign investment) and output growth in the short term,” the bank said in its Global Economic Prospects Report. “If, however, reforms stall, this could result in significantly lower investment and growth than projected in the baseline.”

Meanwhile the other three BRICS countriesBrazil, Russia and South Africa—do not seem to be living up to the hype from the days that acronym was created.  The World Bank predicts that the Brazilian and Russian economies will both shrink this year while South Africa’s will only expand by 2%. Things will improve for the three economies in the next two years but even then, they will each only see their GDPs expand by 2.5% or less in 2017.

via India to Widen Its Growth Lead Over China, World Bank Says – India Real Time – WSJ.

12/02/2015

Racing the elephant against the dragon | The Economist

IN 1991 India’s finance minister presented a budget to India’s parliament that would change the economic history of his country. His reforms dispensed with mounds of the red tape that reined in Indian growth, and opened up many industries to foreign capital. But India was a late-comer to the liberalisation game; China had been opening its economy since the 1970s and accelerated its efforts in the 1990s. China’s reforms have been the more successful; except for a brief period in 1999, the Chinese economy has consistently outperformed its smaller neighbour. But that picture may soon reverse.

Official statistics published on February 9th revealed that India’s GDP rose by 7.5% in 2014, a shade faster than China’s over the same period. Later this month Narendra Modi, India’s prime minister, is likely to push new reforms. India also enjoys a demographic advantage. Whereas China’s workforce began to shrink in 2012, more than half of India’s current population is younger than 25. India, rather than China, may henceforth be the symbol of rapid emerging-market growth.

via Daily chart: Racing the elephant against the dragon | The Economist.

12/02/2015

India Passes China to Become World’s Fastest-Growing Economy – China Real Time Report – WSJ

Everyone from the World Bank to Goldman Sachs had predicted it wouldn’t happen for another two years but recent recalculations indicate that India has already dethroned China as the world’s fastest-growing big economy.

Late Monday, India’s statistics ministry surprised economists when it unveiled the new numbers for the growth of India’s gross domestic product. It ratcheted up India’s GDP growth figures using a new methodology that pegs expansion in Asia’s third-largest economy at 7.5% last quarter and 8.2% the quarter before that. Economists and the ministry, using the old methodology, had originally said growth was closer to 5.5% during those quarters.

While economists, investors and executives are still wondering how growth could have been so high during those quarters when other indicators suggested times were tough, the new official numbers mean that India outpaced China, taking the pole position as the fastest-growing major economy in the world.

India has been able to catch up because China’s growth has been slowing. The Middle Kingdom’s GDP expansion was 7.3% in both the third and fourth quarters of 2014. While there are smaller economies which may have had stronger growth, this puts India on top after decades driving in China’s slipstream.

Of course, China’s economy is still four times the size of India’s.

“There’s no comparison between these growth rates because of the size of the economy of China,” said Ashish Kumar, director general of the Central Statistics Office as he announced the new GDP growth numbers.  “If this kind of growth continues and China continues to perform at a lower level, then still it will take 20 to 30 years to catch up.”

Still, if it can keep up this pace at least India will be gaining some ground. More importantly, a return to high growth might mean India is following in China’s footsteps and entering a take-off phase.

The South Asian nation needs to revamp its economy to help create more manufacturing jobs and savings if it wants to become the next China, said Frederic Neumann, an economist at HSBC in a recent report.

“That’s a challenging transformation,” he said. “India may never quite match the rapid ascent of China, but even at a slightly slower speed it will start to make waves.”

via India Passes China to Become World’s Fastest-Growing Economy – China Real Time Report – WSJ.

03/02/2015

Shanghai’s economy: GDP apostasy | The Economist

IN AN officially atheist country, one form of worship actively encouraged by the Chinese government has been devotion to GDP. From village chiefs to national leaders, presiding over fast economic growth has been the surest path to career success. Targets for GDP have formed the centrepiece of annual budgets, with officials convinced that failure to achieve them would lead to soaring unemployment and even chaos. Officials fiddle the numbers—massaging them up when growth is too slow and down when it is too fast—but basic faith in GDP as the most powerful expression of their aims and accomplishments has been unwavering.

So the break with tradition was something akin to Vatican II, when on January 25th the Shanghai government announced its policy plans for 2015 and chose to omit a GDP target. While Yang Xiong, the mayor, pledged that the city would “maintain steady growth”, he gave no indication of what that might mean in numbers. In recent years China’s 31 provinces and mega-cities have steadily lowered their GDP targets as the economy has slowed. At least two-thirds missed their goals last year, a sign that such targets have become less important than in the past. But Shanghai is the first to dispense with a target altogether. The city’s Communist Party chief, Han Zheng, is a member of the ruling Politburo, so the omission was a powerful signal.

China’s leaders are still very keen on GDP. When growth slowed sharply early last year officials ramped up spending on infrastructure, a spending boost that helped the central government to come in just one-tenth of a percentage-point shy of its growth target of 7.5% last year. But leaders have been calling for more attention to economic quality rather than just quantity. They want to end an investment-heavy approach that has damaged the environment and led to a dangerous build-up of debt. Ending a fixation on GDP targets will be a great help.

With no such target to cling to, or to blush at when missed, Shanghai officials now have more scope to work on other things. Transforming the city’s free-trade zone, much hyped but little used, into a real testing ground for financial reforms, as was initially intended, is a priority. “Officials will feel less pressure to meet short-term investment objectives,” says Zhu Ning of the Shanghai Advanced Institute of Finance. Mr Yang, the mayor, says Shanghai wants to create 500,000 new jobs this year. That will only be possible if the economy remains strong. But quite what level of GDP is needed to foster such job creation is uncertain, especially as labour-intensive services come to dominate the city’s economy. So it is sensible to follow the example of other countries and focus more on employment levels than GDP.

For China as a whole, it is too soon to expect an end to GDP targeting. It will remain an important policy tool for guiding and evaluating officials, especially in poorer parts of the country where faster growth is needed to narrow the gap with coastal cities. Tibet is shooting for 12% growth this year, the same target as it set, and achieved, in 2014. But Shanghai’s example proves that, even in the grand temple of China, the cult of GDP is losing adherents.

via Shanghai’s economy: GDP apostasy | The Economist.

31/01/2015

China’s Provinces Lower Their Sights After Most Miss Economic Targets – China Real Time Report – WSJ

Most Chinese provinces missed their economic growth targets for last year, according to figures published Friday, in what would only recently have been an unthinkable event but is another sign of the economy’s rapid deceleration.

Out of 31 provinces and province-like administrative regions, 27 missed their marks, while one met its target and three have yet to report their performance, according to the Beijing News, a state-run newspaper.

Growth targets have been seen for decades as ironbound objectives, by Chinese officialdom, from Beijing on down. Provinces have typically competed to outdo the national target—which has ranged around 7% to 8%–setting their own goals higher and then making sure they exceed them, and with good reason: Growth factors heavily in the performance assessments for mayors, governors and other officials seeking promotions to higher office.

via China’s Provinces Lower Their Sights After Most Miss Economic Targets – China Real Time Report – WSJ.

31/01/2015

India’s economic growth revised up by almost 50 percent | Reuters

India’s economy grew almost 50 percent faster in 2013/14 than earlier thought, the government said on Friday after changing a formula, a reminder of the challenges that unreliable statistics present to Indian policymakers.

Kashmiri farmers thrash paddy crop in Srinagar October 22, 2013. REUTERS/Danish Ismail/Files

In the year leading up to the elections that brought Prime Minister Narendra Modi to power last May, the economy grew 6.9 percent, not the 4.7 percent reported earlier, chief statistician T.C.A. Anant told reporters.

Modi’s campaign succeeded partly because of the widespread feeling that his predecessors from the Congress party had plunged the economy into the country’s longest deceleration in growth in a generation.

The revised formula, showing a faster recovery, includes under-represented and informal sectors as well as items such as smartphones and LED television sets in gross domestic product.

That could boost India’s growth figure in the year ending in March 2015, which the Reserve Bank of India (RBI) has projected to be around 5.5 percent.

Some in government predict the change will

via Economic growth revised up by almost 50 percent | Reuters.

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