Some analysts who are usually astute and show a good understanding of economics seem to put on blinders before looking at China. It’s as if, when considering China’s prospects, they forget everything they know about economics and refuse to see beyond the superficial. A recent example is Doug Casey’s article titled ‘Chung Kuo’.
Here’s an excerpt from the Casey article:
‘I can give you a dozen credible scenarios describing what might happen in China over the next couple of decades. But the trend that seems certain to continue is the rapid rate of wealth increase there. I don’t credit official figures with any great accuracy, but if we take them as being approximately right, then the U. S. economy is growing at 2%, and China’s at about 7% – but with a base of about four times the population. What this means is that the largest economy on the planet will soon no longer be America’s – but China’s.’
There are two big problems with the above paragraph. First, after saying that he doesn’t credit official figures with any great accuracy he takes these figures as being approximately right. The reality, however, is that China’s reported growth figures are completed fabricated. It’s not that China’s government reports growth of 7.0% when the actual rate of growth is 6.5%; it’s that China’s government reports growth in the 6.5%-7.5% range every year regardless of what’s happening. If the economy were shrinking rapidly the government would still report growth in the 6.5%-7.5% range. Based on other measures of economic activity there have almost certainly been 12-month periods over the past 10 years when China’s economy shrank in real terms, but during these periods China’s government still reported growth of around 7%.
The second problem is that the monetary size of an economy is irrelevant to the people living in it. What matters is per-capita wealth, not aggregate wealth and certainly not aggregate spending (which is what GDP attempts to measure). For example, it’s quite possible that in size terms Nigeria’s economy will overtake Switzerland’s economy within the next few years, but so what? Nobody in their right mind is saying that if this happens then the average Swiss will be worse off than the average Nigerian, because it obviously must be taken into account that there are 175M people in Nigeria and only 8M in Switzerland.
This post was published at GoldSeek on 5 October 2016.
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