China's Miraculous Economy

I have always been wondering about the great accuracy of China’s prediction of its economic growth. While there are often differences between the predicted and actual economic growth made by various countries, China has always been spot-on. If the Chinese Government says that economic growth for the next quarter is predicted to be 10 % for example, it is guaranteed that the actual economic growth will be 10% if not more.

I find this phenomenon intriguing because numerous factors such as consumption, investment, government expenditure and net exports contribute to the measure of economic growth. No matter how capable a Government is, it is near impossible to control the actual numbers that reflect these factors because it is the behavior of the individuals that ultimately churn out those numbers. Unless we live in a machinistic society, it is highly costly and hence ineffective to monitor every single person to ensure that he/she fully abide by the rules that have been set by the Government.

I finally obtained my answer when I read an article in The Business Times titled “China’s growth – economic or accounting miracle?” In the article, the writer shared that Dr John Makin, a visiting scholar in the American Enterprise Institute had written in another article that China’s economic statistics are based on recorded production activity rather than expenditure growth which is made up of the factors I mentioned above. This means that things such as disbursal of funds and shipments to retailers rather than funds actually being used and actual sales by retailers to ultimate consumers respectively are recorded as GDP growth.

With such accounting methods, it is not a wonder or a miracle that China always achieves the target that it has set.