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China - residual GDP

(Source: https://threader.app/thread/1452847643164504066)

For years I’ve been arguing (against most analysts focusing on China, I should add) that much of the GDP “growth” generated by Chinese investment in property and infrastructure should not be considered part of China’s GDP on a basis comparable to that of other countries. It was not real economic growth so much as residual activity designed to bridge the gap between real economic growth and the politically optimal GDP growth target.

On a comparable basis, I argued, China’s GDP growth was probably closer to 3%. It now seems, at least within China, that this is becoming a consensus view. According to yesterday’s Caixin editorial A B, “at present, China is facing inadequate investment, weak consumption, a complicated external environment and substantial downward pressure on its economy." It continues: “While many analysts believe that China’s regulatory actions in the real estate sector are unlikely to return to the old path, some expect that real estate could be used as a last resort to boost the economy once it cannot bear the burden — especially if local governments become financially constrained. Those who have continuously benefited from the housing boom are still hoping for this.” But, they add, “despite China’s severe economic slowdown, real estate should no longer be used as a short-term means to stimulate economic growth. Relying on real estate for growth will adversely affect high-quality growth.”

They claim, in other words, that the economic activity generated by real estate investment is actually hampering the economy, not making it wealthier. If that’s the case, we really have to reconsider the meaning of many years of high GDP growth.