China Growth – How bad is it?
Logically, an economy the size of China’s... cannot physically grow at double digit percentage rates indefinitely.
In my experience, GDP numbers rarely elicit dramatic headlines, reeking of urgency and desperation. But when China announced GDP growth of 6.2% for the second quarter, it seemed to me that anguish was in the air. ‘China’s economic growth slumps to lowest in 27 years as the trade war hits !’ they screamed. ‘China’s economic growth is at its slowest since 1992 !’ Twitter was full of despondency – and schadenfreude.
It’s the trade war, some cried. There is no doubt that the US tariffs on Chinese imports contributed to the slowdown in the rate of growth, but so did Beijing’s established policy of reducing the size of the country’s debt – the government has been focused on this since 2013, when ‘financial risk’ was cited as a top priority.
But there is another, less reported but no less valid reason: Logically, an economy the size of China’s ($25trn adjusted for differences in purchasing power) cannot physically grow at double digit percentage rates indefinitely. When I started investing in Emerging Markets in 1996, China’s economy (adjusted for purchasing power) was a similar size to Japan’s. Now it’s five times as big.
Using World Bank GDP (PPP) data4, look what happens if China grows at ‘only’ 6% from here:
Source: Signal, a newsletter of Eurasia Group/GZERO Media https://www.gzeromedia.com/subscribe/
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