The Real and the Unreal

One of the things that all inveterate China-watchers can tell you is that there’s a discrepancy between real, observable, measurable phenomena and the growth figures being reported by the Chinese government. At Wolf Street Wolf Richter observes:

While China’s economy was strong, rail freight volumes were soaring. For example, in 2010, when China was pump-priming its economy, rail freight volume jumped 10.8% from a year earlier. In 2011, it rose 6.9%. It had soared 44% from 2005 to 2011! But 2011 was the peak.

In 2012, volume in trillion ton-kilometers declined one notch and in 2013 stagnated. But in 2014, volume skidded 5.8%. And in 2015, volume plunged 10.5% to 3.4 billion tons, according to Caixin, citing figures from the National Railway Administration. It was the largest annual decline ever booked in China.

It was a year that the People’s Daily, the official paper of the Communist Party, described in this elegant manner:

Dragged by a housing slowdown, softening domestic demand, and unsteady exports, China’s economy expanded 6.9% year on year in 2015, the weakest reading in around a quarter of a century.

Which is precisely where things stop making sense: rail freight volume plunges 10.5% in 2015, and the economy still increases 6.9%? I mean, come on.

What if, rather than growing by more than 6%, China’s economy was contracting in real terms? Which would be more consistent with real, observable, measurable phenomena? What would that imply? What would the policy implications be?

The United States is far less exposed to a downturn in the Chinese economy than other countries including Germany, Australia, Canada, and Brazil are. That is clearly demonstrated by our enormous trade deficit with China. Will the Chinese stop selling to us because their economy is in a tailspin? That’s nonsense. They might buy less from us but so much of what they’re buying from us, e.g. “electrical equipment”, is actually being assembled into products that are in turn being sold back here in the U. S. that even that is dubious.

Hat tip: Business Insider