Tuesday, 5 January 2016

"Slowdown in Chinese manufacturing raises worries about basic numeracy skills"

From The Guardian:

Against the backdrop of a faltering global economy, turmoil in the country’s stock markets and overcapacity in factories, Chinese economic growth has slowed markedly. The country’s central bank expects growth in 2015 to be the slowest for a quarter of a century.

After growing 7.3% in 2014, the economy is thought to have expanded by 6.9% in 2015 and the central bank has forecast that it may slow further in 2016 to 6.8%.

A manufacturer who knows China well pointed out the fundamental fallacies in this to me. (Let's assume that the actual underlying figures and statistics are correct and not a figment of the Communist Party's imagination. They can fib about a couple of percent here or there, but you can't fake an economy quadrupling over ten or twenty years).

1. If an economy is growing, albeit more slowly, then it is still growing. It is not in any way "slowing"; growth of 6.9% is still double average annual compound growth of industrialised societies since the Industrial Revolution.

2. The Chinese economy has grown so quickly over the twenty years that 6.9% growth this year represents a larger absolute increase than 12.5% growth ten or fifteen years ago, to wit:

2000 - GDP per capita RMB 8,000, grows by RMB 1,000 to RMB 9,000 = 12.5% growth
2015 - GDP per capita RMB 45,000, grows by RMB 3,100 to RMB 48,100 = 6.9% growth.

So in absolute terms, the Chinese economy is growing three times as fast as it was fifteen years ago.


A K Haart said...

Very interesting and surely a better way to look at the issue. Maybe the Guardian is grasping at straws because it doesn't like economic growth.

Lola said...

The general level of innumeracy is tragic.

Lola said...

Perhaps I should have said the 'the aggregate level of innumeracy is tragic'...

mombers said...

Maybe the problem is that many industries are relying on China's growth maintaining its ridiculously and unsustainably fast rate? E.g. mining operations growing at a pace that requires China to keep consuming more and more instead of slightly more?

Lola said...

It looks to me a classic proof of the Austrian Business Cycle Theory.
Expand money and credit. Distort production. Massive boom. Then Massive bust as it all has to unwind.

Mark Wadsworth said...

AKH, thanks, but it's not just the Guardian, all newspapers splurge this out, it's a meme, a bit like the 'housing crisis'.

L, you should. Probably.

M, possibly that's the Australians buggered, or more accurately that fat corrupt lady, so not really my concern. Their fault if they stake everything on one card.

L, separate topic, I was just doing maths and logic regardless of actual subject matter. And again, according to the manufacturer I met, the Chinese know what they are doing and the much vaunted 'credit bubble' or 'land price bubble' is nowhere near as bad as westerners make out.

Random said...

"much vaunted 'credit bubble' or 'land price bubble' is nowhere near as bad as westerners make out."

The Stigler said...

And China's rate of growth was always going to slow down. You have an ideological change, ditching communism for a sort of market economy and the early gains are going to be huge, because even the simplest sorts of low-investment capitalism start. You get the easy growth catching up. Same thing happened with Eastern Europe.

It's like squeezing a lemon. First push, out comes a load of juice. Second push, bit more. But each push diminishes the amount, and you have to use more and more imagination to get the last juice out.

Mark Wadsworth said...

TS, you appear to have missed the point. This year, China squeezed out three times as much as 15 years ago.

Bayard said...

"possibly that's the Australians buggered, or more accurately that fat corrupt lady,"

We'll presumably know when she starts to sing.