Yes, you read it right: 15%. But before you get too excited, let us explain…
One of the less-noticed reform items after China’s Third Plenum was a pledge by the country’s National Statistics Bureau to bring its methodology more closely in line with international standards.
We’ll set aside for now if this means anything for its increasingly suspicious copper production statistics. It’s much more important than that.
BCA Research, a sister company of Metal Bulletin, has crunched some numbers to estimate what the economy will look like once it is assessed closer to international methodology.
Their recent report, titled How Unbalanced is the Chinese Economy? has some startling conclusions that challenge conventional wisdom in the investment community.
Firstly, China’s economy may turn out to be 15% bigger than the NBS currently says, once the new methodology is in place by mid-2015.
But perhaps more importantly, they conclude that China’s economy isn’t as dangerously dependent on investment and infrastructure as is commonly thought.
“We estimate that household consumption will likely be revised from currently 37% of GDP to around 50% under the new reporting standards,” they say.
This is of course highly bullish for China’s outlook. If the economy can be significantly rebalanced towards consumption simply by shuffling some numbers around, then there isn’t quite as much at stake in the real reforms as we thought.
Sceptics will argue that it’s not just the imbalance that’s the danger, it’s the vast debt and misallocation involved in the rapid expansion of infrastructure: that won’t change just because you reassess the scale of household consumption.
But that’s a bit too complicated for us amateurs at Hotline, especially the day after our Christmas party. We’re just happy thinking about GDP growth of 15%.
