China's government under President Xi Jinping has announced that it achieved its real economic growth target of 5% for 2023. Xi said China's gross domestic product in 2023 increased by 4.6% in nominal terms or 5.2% in inflation-adjusted real terms. Are such GDP data credible?
For quite some time, there have been suspicions that local Chinese Communist Party cadres have falsified regional GDP data. They do this in an attempt to meet growth targets set by the central party leadership. Therefore, I have personally estimated China's GDP growth. My estimate is based on data related to real estate investment, net exports, and household consumption, which greatly affect GDP.
Actual Growth May be Negative
Real estate investment itself accounts for more than 10% of GDP. But when including related demand such as electrical products, it becomes about 30% of GDP. As real estate investment in 2023 declined 16.7% from 2022, it is calculated that real estate investment including related demand could have pushed down GDP by nearly 5%.
Net exports are nominal exports minus imports. These net exports account for more than 3% of GDP. The total net exports in the first 11 months of 2023 decreased by 32.3% compared to the same period in 2022, reducing the GDP by about 1%. When combining net exports with real estate-related factors, the result is a GDP contraction effect of about 6%.
The data on household consumption, which accounts for about 40% of GDP, has not been released. However, the retail sales of consumer goods in 2023 increased by 7.2% compared to 2022. If this is considered as household consumption, it could have pushed up GDP by more than 2.8%.
The combination of the three major GDP components thus indicates that GDP might have contracted more than 3% in nominal terms. Since the inflation rate was minus less than 1%, 2023's real GDP change can be estimated as a contraction of more than 2%.
In addition to these components, public investment is also a key. However, the Xi government is cautious about large fiscal expansion that could accelerate the Chinese yuan's depreciation. Therefore, the effect of public investment boosting GDP will be minimal.
Encourage Japanese Companies to Come Back Home
The Xi government's obsession with achieving its GDP growth target is extraordinary. This is in line with the CCP policy of applying the anti-espionage law to discourses referring to Chinese economic decline.
The falsification and concealment of information, symbolized by GDP statistics, cannot help but increase investment risks in China. Furthermore, China's economic decline under deflationary pressure could be prolonged. The bursting of the real estate bubble that began in the autumn of 2021 has not yet subsided. Recently, financial instability centered around non-banks has been occurring frequently.
In response, the Chinese government has public security police detain senior officials of non-banks and financial supervisory authorities. It aims to block out relevant information.
Western companies and investors have drastically reduced direct and securities investment in China. Some Japanese companies have already moved to exit from China, but many seem hesitant.
We should now give up on investment in China completely and hasten the return to Japan. The Fumio Kishida administration only has to ensure the expansion of domestic demand through tax cuts and support domestic investment by companies.
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Author: Hideo Tamura
Hideo Tamura is a Planning Committee member at the Japan Institute for National Fundamentals and a columnist for the Sankei Shimbun newspaper.