Earlier today in ‘The Truth Behind China’s GDP Mirage: Economic Growth Slows To 1999 Levels’, we pointed out that Beijing may be habitually understating inflation for domestic output, which has the effect of making “real” GDP less “real” than nominal GDP.
This is what we’ve called the ‘deficient deflator math’ problem and it raises questions about whether China is netting out import prices when they calculate the deflator. If they’re not, then the NBS is likely overstating GDP during periods of rapidly declining commodities prices.
If Beijing is indeed understating the deflator it’s not entirely clear that it’s their fault, as robust statistical systems take time to implement, especially across an economy the size of China’s. That said, there are plenty of commentators who believe that the practice of overstating GDP is policy and exists with or without an understated deflator. Put simply: quite a few people think China is simply lying about its economic output.
This post was published at Zero Hedge on 10/19/2015.