China’s Slowdown May Be Worse Than Official Data Suggest – The Fed

In the months following the 2008–09 economic crisis, emerging-market economies robustly rebounded. Output in China and India expanded more than 10 percent in 2010, and Brazil’s gross domestic product (GDP) growth of 7.5 percent was its best performance in 25 years. Emerging-market economies retraced their precrisis level of industrial production by 2009, while advanced economies remained below their precrisis levels in 2012 (Chart 1).

But the strong emerging-market rebound—most significantly in China—hasn’t endured. When China’s average GDP growth remained above 9 percent in 2011, hopes rose that a sustained recovery would prop up the world economy amid the European sovereign debt crisis and subpar growth in the U.S. However, China’s economy deteriorated rapidly in 2012, with GDP growth slowing to 8.1 percent in the first quarter from 8.9 percent at year-end 2011. Second quarter GDP growth slid further, to 7.6 percent, the lowest reading since the height of the global financial crisis in early 2009.

Even with the decline, there is speculation that these figures may still understate economic slowing. Economists have long doubted the credibility of Chinese output data. For example, some studies indicate that GDP growth was overstated during the 1998–99 Asian financial crisis, when official figures reported that China’s GDP grew on average 7.7 percent annually. Alternative estimates using economic activity measures such as energy production, air travel and trade data ranged from 2 percent to 5 percent.[1]

The dubious character of the official figures is no secret in China. Senior government officials, including Vice Premier Li Keqiang, dismiss official GDP data as “man-made” and “for reference only” because of political influence, particularly at the local level, on data reporting.[2]

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