China posted stellar economic growth in the first quarter of the year, but one good quarter does not erase its deflation woes, says Coface chief APAC economist Bernard Aw.
People cross a street on the Bund in the Huangpu district in Shanghai on Jun 15, 2023. right now. Despite a chorus of warnings about China ’s economic woes - from the downturn in the real estate sector to subdued household consumption and local government debt - why is its growth rate defying expectations?
During inflationary periods, real gross domestic product tends to be lower than nominal GDP because we strip out the effect of price increases to focus on volume growth. Here is a simplified example: Selling 100 cups of kopi at S$1 each will generate revenue of S$100; raising the price to S$2 will generate S$200, but there is no actual growth.
There is no denying that China’s economic growth is slowing. China’s nominal GDP growth of 4.2 percent in the quarter from January to March 2024 was notably slower than the annual rate of 6.3 per cent between 2019 and 2023, and less than half of the pre-pandemic pace of 10.2 per cent.Therefore, a perennial question has been: How reliable is China’s economic data?
As doubts swirl about whether reported data has been manipulated, China’s National Bureau of Statistics is aware of the issues with local government data and has taken various measures to address them, such as using data by separate survey teams to complement data reporting from local governments. The agriculture and animal husbandry sectors have declined in the past two quarters as there was an excess of supply, leading to price discounts for some food items, such as vegetables and livestock meat, which were the main drivers of deflation.
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