by Lillian Sun
China is one the world’s largest manufactures and currently holds an important position within the global market. Through the past decade, China’s immense double digit GDP growth has caused it to become the role model for all developing countries. In most classes that I have taken on the development of China and the Chinese economy, China’s significant growth rates and profitability have always been emphasized. However, an article recently published in the New York Times offers an explanation which may change your opinion of the Chinese economy and of China’s reports on its growth rate.
Despite repeated denials from Chinese government economists, a variety of Western economic studies have suggested that the Chinese government “smoothes” its economic data — exaggerating performance in weak quarters and understating growth in during booms so as to present an image of stability. [link]
The practice of “smoothing” suggests that China may not have always experienced such stable growth, which the rest of the world believes. Instead, this article suggests that the Chinese manipulates their growth data to portray stability which they may not actually have. I am not saying that all of the data which China reports are therefore absolutely inaccurate, but this article offers a degree of skepticism of which investors should be aware.
Stephen Green, an economist in the Shanghai office of Standard Chartered Bank, said he suspected that the true Chinese economic growth rate in the first quarter might have slowed a little more than the government acknowledged.
The Chinese government is known to be notorious for regulating the flow of information to the rest of the world. The amount of problems which the Chinese economy is still punctured with, such as their weak banking system, along with their highly unregulated stock market, really puts China in a risky position within the global community unless certain institutions are implemented to address these problems. These problematic issues suggest that it is very likely that “smoothing” does actually take place within the Chinese economy, and I am sure that in the long run, this can become a serious issue if inaccurate data is reported often.
In dealing with an overheating economy and the scares of inflation, China is also hurting from the current global economic downturn. Those who invest in China must realize that a profitable economy or market does not last, that is just how the business cycle works. However, as a socialist country with an authoritarian regime controlling the correct and the flow of information, the rest of the world must be wary of the manipulated data and reports which the Chinese government may be feeding the public.