Gross Domestic Product, or GDP, is perhaps the most widely known economic statistic in the world. But just how useful is it? Li Keqiang, the man widely tipped to become China’s new premier later this year, has asserted that a country’s GDP figures are “man-made”, implying they are an unreliable indicator of economic strength. Li instead prefers to focus on electricity consumption, rail cargo volumes, and disbursement of bank loans as more worthwhile metrics.If Li is to be believed then China’s economy could be heading for a dramatic slowdown. According to the Financial Times, rail cargo volumes and bank loans have dipped considerably, much to the surprise of policymakers. And while electricity consumption data for April is not yet available, output increased just 0.7 per cent last month from 2011. In March the corresponding figure was 7.2 per cent, and in April 2011 it was 11.7 per cent.Meanwhile, China’s GDP growth has been decelerating for some time. The most recent data, from the first three months of 2012, indicated that China grew at 8.1 per cent, a robust figure but still well down from the gaudy double-digit performances of recent years. When those data were released, many analysts predicted that the Chinese economy would rebound strongly. It was an aberration, they said; China’s export-oriented growth model was running out of steam, but the country would comfortably settle into years of 8-9 percent growth.Patrick Chovanec, a professor of business at Tsinghua university, begged to differ:
“China’s been riding an investment boom over the last three years that everyone recognised was unsustainable and now we’re seeing what unsustainable looks like,” Mr Chovanec says. “The unravelling of this investment boom is happening with nothing to replace it and that means China is in store for much lower GDP growth than we’ve become accustomed to.”
If Chovanec is correct—and this latest data supports his argument—then Chinese leaders are about to confront one of the most challenging periods of the post-Mao era. Political stability, not to mention the legitimacy of the Communist Party, is inextricably linked to the country’s economic performance. And as the fallout from the Bo Xilai saga reminds us, the Chinese political system is already under considerable strain. There are serious questions as to whether the system can withstand an economy that is unable to keep providing consistent, widespread improvements in living standards that have lifted hundreds of millions of Chinese into the middle class.