Skip to main content

Site navigation

  • University of Technology Sydney home
  • Home

    Home
  • For students

  • For industry

  • Research

Explore

  • Courses
  • Events
  • News
  • Stories
  • People

For you

  • Libraryarrow_right_alt
  • Staffarrow_right_alt
  • Alumniarrow_right_alt
  • Current studentsarrow_right_alt
  • Study at UTS

    • arrow_right_alt Find a course
    • arrow_right_alt Course areas
    • arrow_right_alt Undergraduate students
    • arrow_right_alt Postgraduate students
    • arrow_right_alt Research Masters and PhD
    • arrow_right_alt Online study and short courses
  • Student information

    • arrow_right_alt Current students
    • arrow_right_alt New UTS students
    • arrow_right_alt Graduates (Alumni)
    • arrow_right_alt High school students
    • arrow_right_alt Indigenous students
    • arrow_right_alt International students
  • Admissions

    • arrow_right_alt How to apply
    • arrow_right_alt Entry pathways
    • arrow_right_alt Eligibility
arrow_right_altVisit our hub for students

For you

  • Libraryarrow_right_alt
  • Staffarrow_right_alt
  • Alumniarrow_right_alt
  • Current studentsarrow_right_alt

POPULAR LINKS

  • Apply for a coursearrow_right_alt
  • Current studentsarrow_right_alt
  • Scholarshipsarrow_right_alt
  • Featured industries

    • arrow_right_alt Agriculture and food
    • arrow_right_alt Defence and space
    • arrow_right_alt Energy and transport
    • arrow_right_alt Government and policy
    • arrow_right_alt Health and medical
    • arrow_right_alt Corporate training
  • Explore

    • arrow_right_alt Tech Central
    • arrow_right_alt Case studies
    • arrow_right_alt Research
arrow_right_altVisit our hub for industry

For you

  • Libraryarrow_right_alt
  • Staffarrow_right_alt
  • Alumniarrow_right_alt
  • Current studentsarrow_right_alt

POPULAR LINKS

  • Find a UTS expertarrow_right_alt
  • Partner with usarrow_right_alt
  • Explore

    • arrow_right_alt Explore our research
    • arrow_right_alt Research centres and institutes
    • arrow_right_alt Graduate research
    • arrow_right_alt Research partnerships
arrow_right_altVisit our hub for research

For you

  • Libraryarrow_right_alt
  • Staffarrow_right_alt
  • Alumniarrow_right_alt
  • Current studentsarrow_right_alt

POPULAR LINKS

  • Find a UTS expertarrow_right_alt
  • Research centres and institutesarrow_right_alt
  • University of Technology Sydney home
Explore the University of Technology Sydney
Category Filters:
University of Technology Sydney home University of Technology Sydney home
  1. home
  2. arrow_forward_ios ... Newsroom
  3. arrow_forward_ios ... 2016
  4. arrow_forward_ios 01
  5. arrow_forward_ios The problem of misreading the signs on China's economy

The problem of misreading the signs on China's economy

23 January 2016

James Laurenceson

 

James Laurenceson, Deputy Director, Australia-China Relations Institute, University of Technology Sydney

Download

This article originally appeared in the Australian Financial Review, January 23 2016. 

Since the Shanghai sharemarket burst last June, there's been a striking divergence in positions taken on the direction of China's economy. In the first few weeks of 2016 this divergence has only grown.

It's those who have been studying China's economy the longest, such as Justin Lin at Peking University in Beijing and Nicholas Lardy at the Peterson Institute for International Economics in Washington, who seem the least panicked. 

Here's what they know that many other commentators are missing. China's official statistics aren't that bad.

Yes, China's leaders aren't exactly hands-off when it comes to information flows. And that inevitably means that when new economic data are released these tend to be viewed with suspicion.

So it was on Tuesday when it was announced that the economy officially grew by 6.9 per cent in 2015.

Yet in 2014 Carsten Holz, who has made a career out of studying China's economic numbers, at Hong Kong University of Science and Technology, concluded: "Numerous specific allegations have been levied against Chinese GDP statistics, but the evidence invariably does not bear out significant and persistent problems."

Last year The Economist settled on the view that "there is a difference between smoothing data and totally fabricating it. Evidence suggests that China is guilty of the former (the lesser charge) but not the latter (the more serious allegation)".

This week's data release showed consumption accounting for two-thirds of the growth in GDP. Resilient household spending was confirmed by retail sales being up 10.7 per cent over the past year.

And surely those strolling through the malls of Beijing, Shanghai and Chengdu can be relied on to give an unbiased account?

The leading independent gauge of Chinese consumer sentiment is actually produced by Westpac, and not China's National Bureau of Statistics, and it says that shoppers are more confident now than they were a year ago.

Part of the problem is that China's economy has developed so fast that frequently the wrong comparisons are made and the wrong indicators used. 

The most abused headline over the past week must be that China is growing at its slowest pace in 25 years. The idea that it should keep growing at the same percentage rate as even five years ago, despite the economy coming off an ever-larger base, defies logic.

Purchasing power

It is far more sensible to look at the purchasing power being added. After all, this is what will buy more Australian beef, dairy, wine, tourism and education. In growing at 6.9 per cent last year, China added 50 per cent more purchasing power than it did in 2010, when it grew at 10.6 per cent. 

Until 2011 the secondary sector (industry and construction) was the largest part of China's economy. No surprise then that the purchasing managers index (PMI) for manufacturing came to be watched closely.

But now the share of services has reached 50.5 per cent of GDP, a full 10 percentage points clear of the secondary sector. This means the focus needs to shift to the PMI for services, which indicated month-on-month expansion throughout last year.

Another popular narrative not to be seduced by is the one that says China's government is back-pedalling on market reform.

Developments such as the People's Bank of China burning through $US108 billion ($157 billion) of its reserves in December, to prevent the RMB from falling more rapidly in value against the US dollar, are cited in support of this view.  

But how then to explain that according to the Bank of International Settlements the RMB has been allowed to appreciate nearly 30 per cent on a trade-weighted basis since 2010?

And other obvious market breakthroughs have also been achieved, such as the complete liberalisation of interest rates last October.

What the Chinese authorities keenly resist is speculation, not price movements based on fundamentals.

Sure, it's not always easy to spot which is which. But consider the exchange rate again.

It's scarcely been reported that China's trade surplus rose to a record high of $562 billion in 2015, up 57 per cent from 2014. It also attracted its highest-ever level of foreign direct investment, $126 billion, up 6.4 per cent from the year before. 

These are not the demand and supply conditions that typically lead to a currency's value plummeting.

Third, while China's institutions might regularly be clumsy, don't underestimate their ability to respond pragmatically to new challenges.    

Some like to portray China as a one-trick pony that stumbled on a growth model in the late 1970s – selling to the world low-quality goods produced by cheap labour. But now that wages are rising the country is struggling to move up the value chain.

The Shenzhen model 

Those convinced that China is doomed to get stuck in a middle-income trap might want to take a look at Shenzhen in Guangdong Province, just north of Hong Kong.

Previously a low-cost manufacturing hub, Shenzhen now has a GDP per capita of $US24,259. That's just short of South Korea on $US27,971. In 2014, research and development expenditure accounted for 4.02 per cent of Shenzhen's GDP, compared with 0.74 per cent in Hong Kong, SAR. Shenzhen serves as the global headquarters of internet giant Tencent;  Huawei, the world's largest telecommunications equipment manufacturer; BGI, the supplier of 50 per cent of the world's gene sequencing capacity; BYD, the world's largest maker of rechargeable batteries; and DJI, producer of 70 per cent of the world's civilian drones.   

Amid the more shrill cries about the prospects for China's economy in 2016 and beyond, there might be something to the calm of the old China economy hands after all – people such as Justin Lin and Nicholas Lardy, who follow the long-term patterns, without the short-term distractions. 


Author

Professor James Laurenceson is Deputy Director of the Australia-China Relations Institute (ACRI) at the University of Technology Sydney. 

Share
Share this on Facebook Share this on Twitter Share this on LinkedIn
Back to Commentary

Acknowledgement of Country

UTS acknowledges the Gadigal People of the Eora Nation and the Boorooberongal People of the Dharug Nation upon whose ancestral lands our campuses now stand. We would also like to pay respect to the Elders both past and present, acknowledging them as the traditional custodians of knowledge for these lands. 

University of Technology Sydney

City Campus

15 Broadway, Ultimo, NSW 2007

Get in touch with UTS

Follow us

  • Instagram
  • LinkedIn
  • YouTube
  • Facebook

A member of

  • Australian Technology Network
Use arrow keys to navigate within each column of links. Press Tab to move between columns.

Study

  • Find a course
  • Undergraduate
  • Postgraduate
  • How to apply
  • Scholarships and prizes
  • International students
  • Campus maps
  • Accommodation

Engage

  • Find an expert
  • Industry
  • News
  • Events
  • Experience UTS
  • Research
  • Stories
  • Alumni

About

  • Who we are
  • Faculties
  • Learning and teaching
  • Sustainability
  • Initiatives
  • Equity, diversity and inclusion
  • Campus and locations
  • Awards and rankings
  • UTS governance

Staff and students

  • Current students
  • Help and support
  • Library
  • Policies
  • StaffConnect
  • Working at UTS
  • UTS Handbook
  • Contact us
  • Copyright © 2025
  • ABN: 77 257 686 961
  • CRICOS provider number: 00099F
  • TEQSA provider number: PRV12060
  • TEQSA category: Australian University
  • Privacy
  • Copyright
  • Disclaimer
  • Accessibility