Is the Chinese economy contracting
Official statistics on China’s GDP growth have always raised accuracy concerns. But as the Chinese economy is slowing down it is of primary importance to understand how severe is the decline in economic growth. In this commentary, Fernald et al. present the results of an adjusted FRBSF China Cyclical Activity Tracker which examines the accuracy of Chinese statistics using indices of economic activity, such as electricity, rail shipments, and industrial production, converted into weighted averages of data on a broad range of measures of economic activity in China. The adjustment they introduce to the Tracker mitigates the substantial volatility in levels that occurred a year ago by scaling the underlying series with the standard deviation of GDP. Their new measure, QCAT indicates that:
[I]n the second and third quarters of 2021, a notable gap has opened up: non-GDP indicators, as captured by the QCAT, appear much more concerning than the (already weak) GDP figures. In fact, the QCAT suggests that China’s economy is actually contracting.
Is China’s growth rate negative?
By: John G. Fernald, Jack Mueller, Mark M. Spiegel – Federal Reserve Bank of San Francisco
China’s rate of potential output growth has also declined
In this paper SUN and Rees use data on GDP, import values, railway freight volumes and the volume of electricity usage as indicators of economic activity, and both the consumer price index (CPI) and producer price index (PPI) as measures of underlying inflation, to analyze the Chinese business cycle and the trends in the rates of economic growth and inflation. They find that:
- China’s natural interest rate averaged around 3-5 per cent between 1995 and 2010, but has declined more recently to be about 2 per cent as of 2020.
- Trend growth increased substantially in the early years of this century, rising from about 7 per cent in the late 1990s to a peak of just over 12 per cent in 2007. Trend growth then experienced a persistent decline until 2015 and then stabilized at around 6 per cent between 2015 and 2019.
- Actual economic growth has typically been close to its estimated trend consistent with the relatively small output gap in China.
The Natural Interest Rate in China
Authors: SUN Guofeng, Daniel M Rees
From: BIS
