The Simple Math of “Staggering” Chinese Growth
Chinese non-export economy grew 23% in June! Before you start googling for that number, let me warn you. You won’t find it. I’ve computed it using fifth grade math.
Here is what we know: exports constitute about 35% of the Chinese economy and they dropped over 20% in June, while the Chinese economy (GDP) grew 8%. So the “X” is the growth rate of 65% of Chinese non-export economy.
0.35 x (-20%) + 0.65 x (X%) = 8%. If you were to solve for X you get 23%.
Enough with math, let me put this number in perspective. Chinese non-export economy grew at 3 times the rate of their GDP. I only have two, very contradictory, explanations for this:
1) The Chinese government is lying through its teeth about its economic miracle growth. It has the incentives to interrogate economic data until it confesses to the party line numbers. This is very plausible, as for months, the Chinese government was showing positive GDP growth while its consumption of electricity was declining. Obviously this doesn’t make much sense. Also, China is not famous for production of intellectual type goods (i.e. software, creation of toxic financial products – that is our specialty) which scale a lot better and don’t require proportional electricity consumption to grow GDP. China makes stuff and to make stuff you need a lot of electricity. Also, even if the growth is completely driven by building high story buildings (even if they collapse), highways, schools – these activities still require a lot of electricity.
2) The numbers are real, the monetary base was up 28.5% in June (again if you can trust that number) and thus the quality of growth is horrible. I’ve discussed this scenario in great detail.
I hate to leave on open-ended note, but only time will tell what is actually going on in China.
P.S. I was not surprised to learn that Jeremy Grantham of GMO – a value investor for whom I have a tremendous respect is concerned about the future of Chinese economy as well.
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What about import? China’s import is also growing at staggering pace as well. Net export contributes to 10% of China’s GDP only.
Simple math: export -20%; import -10% implies net import -10%
0.1 (-10%) + 0.9 (x) = 8%
x is only 10%
Hi Vitaliy, I am not sure we are comparing apples to apples here
I believe the June export decline rate is as compared to last year June, whereas the GDP growth rate is for the quarter and compared to earlier quarter i.e. Q1 2009, also more importantly the GDP growth rates are annualized which means the GDP grew by 8/4 (since there are 4 quarters)i.e. 2% actual growth.
I was not able to dig up the # for export decline in the Q2 quarter compared to Q1 but if you have that info please share, maybe I am completely wrong!
Thanks