Michael Pettis
The first quarter GDP numbers that China’s National Bureau of Statistics released last week have renewed what was already an aggressive debate about whether or not China would be able to meet the 5.5 percent GDP growth target it set for itself this year. Two weeks ago, for example, for the second time in three months, the International Monetary Fund lowered its GDP growth forecast for the country to 4.4 percent from 4.8 percent in January 2022 and 5.6 percent last October. Given the serious headwinds the economy is facing, many analysts question whether China can achieve even this rate of growth.
But it’s a mistake to view China’s growth in terms of whether it can or cannot achieve a particular GDP target. China’s GDP growth is not a measure of the country’s economic output and performance in the same way the statistic is for other major economies. China’s GDP growth target is an input decided by Beijing at the beginning of the year. Its fulfillment depends on the extent to which the economic authorities are able and willing to use the country’s resources and debt capacity to achieve the required amount of economic activity.
Higher GDP growth for China, in other words, doesn’t mean a better economic outcome than lower GDP growth, as it does for most other economies. It just means that the authorities were more willing to employ resources for creating economic activity, whether or not that activity is productive or sustainable. System inputs cannot indicate anything about the performance of that system. Because GDP growth in China is such an input, it cannot be a measure of how well the economic system performs. Only an output measure can gauge its performance.
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