Can China Sustain its 7% GDP Growth Goal in 2015, Despite the Recent Stock Market Plunge?
CEIC China Discovery - Data Insights - August 19, 2015 In a recent article "China economy still facing downward pressure - state planner" published by Reuters, it stated that “China's economy still faces downward pressure and growth momentum is insufficient", according to the country's top economic planning agency, the National Development and Reform Commission (NDRC)’s Gao Gao, who is vice-director of the integration department of the NDRC, said that he was not optimistic on the outlook for external demand. During the first six months of 2015, China reported a growth rate of 7% year on year, in line with Beijing's full-year target. However, the stock market plunge since June and currency adjustment in early August have fuelled concerns about the health of the economy. CEIC China Discovery (CCD) forecasts China GDP with the following methodology: GDP in its simplest form is labour productivity multiplied by the number of workers. China Discovery (CCD) makes a useful forecast of the number of workers which can be used as an input to the equation. In terms of labour productivity, historically GDP growth is a function of the change in access to education among the working age population and the change in the accumulated fixed capital investment per worker. In terms of education we have a strong basis for forecasting the overall education profile of the adult population. China publishes both the existing education profile of the adult population as well as current school enrolments, and with that we are able to estimate quite reliably how the education profile will change (improve) over the future years. Based on the above assumption, Fig. A shows China Discovery (CCD) forecasting GDP growth for 2015 as 6.03%. This figure is more conservative than the government’s full year target, while the consensus estimate from financial institutions is 6.98%. Looking beyond the national GDP forecast, China Discovery (CCD) also provides the province-specific forecasts. These figures are crucial as provinces within China may show varying growth rates, with some provinces growing faster than others. Fig. B demonstrates the diverse growth levels of these provinces with those highlighted in the blue frame (such as Tianjin, Qinghai, Shanxi, Ningxia, Hunan etc.) expected to outperform the national average growth. This illustrates that even when the national GDP faces downward pressure, there are some provinces within domestic China which will outperform the stated forecast GDP. According to our methodology, it is essential to understand Chinese labor productivity in order to explain the slowdown of GDP growth. Fig C. demonstrates the average wage is likely to increase by 11.02% annually from 2010 to the end of 2015, and it will continue to increase, albeit at a slower pace, from 2015 to 2020 at an annual average growth rate of 7.53%. Although the overall GDP per worker is still growing it is outpaced by the growth rate of wages. Therefore, China’s labour productivity may decline, at least in terms of GDP-wage multiples. Discuss this post and many other topics in our LinkedIn Group (you must be a LinkedIn member to participate). Request a Free Trial Subscription. Back to Blog