Is Chinese Economy As Large As It Is Projected To Be?

It is now clear that Chinese data are quite overstated and the Chinese economy now at over $18 trillion as officially announced, is grossly overestimated. Recently reports appeared in some newspapers including popular Hong Kong-based South China Morning Post, to suggest that Chinese growth figures were exaggerated by two percentage point for several years from 2008 to 2016. The reports quoted a study by experts from universities as saying that nominal and real GDP growth was over calculated by two percentage points year after year from 2008 to 2016 and that the miscalculation only got compounded in those years. As a result China’s GDP put at $13.5 trillion in 2018 is actually 18 per cent lower at around $11 trillion.

The study is authored by Chen Wei, Chen Xilu and Michael Song of Chinese University of Hong Kong and Chan-Tai Hsieh from University of Chicago. There were always allegations that China’s data were fudged and grossly exaggerated. This study has only confirmed it and there are indications that the miscalculation had compounding effect on exaggerating GDP figures. If that is the case, Chinese economic growth is not that big and are far behind United States, whose GDP is put at over $21 trillion.

But even at around $11 trillion after the necessary correction of the figures, Chinese economy is still quite large and is twice the size of Japan, which is now at $5.16 trillion.

With Covid impacting Chinese economy badly in the last couple of years, growth had dropped rapidly. That apart Sino-US stand-off, which has impacted Chinese exports badly, the economic recovery is going to be very difficult for China. There are other factors as well. Russian-Ukraine war and slowing global economy too have severe impact.

China’s cannot expect growth to be around 2 per cent this year. It was in the negative territory in the previous years. Next year the projections are around 4-5 per cent, which also appears to be difficult considering the widespread economic woes in China including protests over zero covid tolerance and lock down. There are piles of empty containers stacked in Shanghai and is true of several other ports in the country with exports dipping considerably. Container charge, which was around $4000 per container last year has dropped to $1300 and Shipping liners are finding it difficult to find customers in China. Many large multi-national companies too are shifting their production base from out of China to countries like India, Vietnam, Bangladesh and South East Asia. This is expected to impact the economy further. The job market might become more difficult. As it is, labour cost is going up in China.

There is also a massive real estate collapse in China, non-performing assets of banks have mounted manifold. Reports suggest that ghost towns, unoccupied flats are common features in many towns and cities. There are also reports of people occupying half-finished flats as builders were increasingly finding it difficult to mobilise resources for their completion. Several owners too are finding it difficult to pay their EMIs for their flats due to loss of jobs. The problem is accentuated with food security being fragile. Though China has huge land mass, only one seventh of its total land on the eastern China is arable. The Western China is mostly Gobi Desert and Mountains. The attempt is on to cultivate land as much as possible in Tibet and Xinjaing. China’s increasing interests in Afghanistan and African countries is believed to be aimed at cultivating food crops in these countries. There were unconfirmed reports suggesting that China may look at leasing huge tracks of fertile land in Pakistan’s Punjab in the event of Pakistan defaulting in the repayment of loan it has taken from China, which is suspected to be in commercial terms. One report suggests that Pak debt to China is over $30 billion. The money mostly spent on CPEC projects in Pakistan was not yielding any revenue aggravating the situation.

China has 22 per cent of World population but has only 7 per cent of arable land, which is also shrinking. There are reports to suggest that China’s arable land has shrunk by 6 per cent in the recent years so much so China is increasingly looking at cultivating rice in saline water. Egypt is already doing it. China’s population is huge at 1.41 billion. Though China is nearly self-sufficient in rice, it imports huge quantity of meat, oilseeds, corn, sugar, wheat from Ukraine, fruits, vegetables and dairy products to fill the supply gaps. China is among the largest importer of meat, particularly beef. Even oil cakes for animal feeds are imported. But one good thing is that China has huge foreign exchange reserves at over $3trillion. The problem is the quantity of food that is required for the huge 1.4 billion population is difficult to procure from abroad because there cannot be one single source for such large imports. India too faced similar problems in the import pulses some years ago when there was scarcity. Of course, the problem of pulses shortage was overcome through increased cultivation of the crop within the country. China ranked 34th in the food security index, which is not encouraging considering the huge population in that country.

China may still be the second largest economy even after the necessary correction to the exaggerated growth figures. But their economic woes are many and may need some drastic steps. The recovery is certainly going to be bumpy and prolonged but one thing is certain that the catching up by Indian economy is going to be faster as exaggerated Chinese growth data makes it that much easier. (IPA Service)