China’s
recently released GDP data for 2017 confirm it: the country’s dramatic
rise, with the concomitant increase in its global economic relevance, is
not slowing down.
To be sure, there has been fresh media chatter
about the reliability of Chinese data, owing to reports that some
provinces have been overestimating their economic performance in recent
years. But for all we know, other provinces may have been doing the
opposite. And in any case, the provinces that have admitted to inflating
their data are not large enough to have a significant impact on the
national picture.
Moreover, two key points are often lost in the
debate about China’s official statistics, which the country first
starting releasing in the late 1990s. First, the debate is relevant only
if China is increasing the degree to which it overestimates its data.
Second, China’s published data should be considered in the context of
its trading partners’ own figures, as well as those of major
international companies that do business in China. As I have written
before, it is telling that China has overtaken both France and the
United States to become Germany’s top trading partner.
As for the
annualised 2017 data, most of the media focus has been on China’s
reported real (inflation-adjusted) GDP growth, which, at 6.9%,
represents the first acceleration in a couple of years and an
improvement even on the government’s soft target rate of 6.5%. But the
more important figure is China’s nominal GDP growth translated into US
dollars. Owing partly to a strengthening renminbi, China’s total
economic output grew to $12.7tn in 2017, representing a massive increase
of 13% ($1.5tn) in just 12 months.
Clearly, those who have warned
that China is following in Japan’s footsteps and heading for a long-term
deflationary cycle have been far off the mark. To my mind, such
simplistic comparisons are never particularly useful. Not only has China
averted the risk of deflation; it has done so with an appreciating
currency.
When my former Goldman Sachs colleagues and I first started
tracking the rise of the BRIC economies (Brazil, Russia, India, and
China) in the early 2000s, we figured that it would take until the end
of 2015 just for China to catch up to Japan. Yet 2018 has barely
started, and already China’s economy is two-and-a-half times larger than
Japan’s, five times larger than India’s, six times larger than
Brazil’s, and eight times larger than Russia’s. It is also larger than
the entire eurozone.
China’s staggering $1.5tn expansion in 2017
means that, in nominal terms, it essentially created a new economy the
size of South Korea, twice the size of Switzerland, and three times the
size of Sweden. The latest data suggest that China could catch up to the
US, in nominal terms, sometime around 2027, if not before. Within a
decade after that, the BRIC countries collectively could catch up to the
G7 economies.
Of course, such an achievement would be driven largely
by China. Still, taken together, the remaining BRICs are larger than
Japan. And now that Brazil and Russia have put their recent recessions
behind them, the BRICs will likely make a large contribution to nominal
global GDP in 2018.
One final consideration for the global growth
outlook is the Chinese consumer. Many commentators still discuss China
as if it were solely an industrial power. But consumption in China has
crept up nearly to 40% of GDP. Since 2010, Chinese consumers have added
around $2.9tn to the world economy. That is bigger than the United
Kingdom’s entire economy. British trade negotiators should take note:
after Brexit, the Chinese market will be more important to the UK
economy than ever.
Yet, in addition to its annualised data, China
also recently reported its December data, which revealed monthly
reported-retail-sales growth of a slightly disappointing 9.4%
year-on-year. One hopes that this is a reflection not of a consumption
slowdown, but rather of Chinese policymakers tightening financial
conditions in the second half of 2017.
Needless to say, as China
becomes increasingly important to the global economy, its upside and
downside risks will continue to have far-reaching implications for the
rest of the world. And, indeed, a consumption slowdown would be bad not
just for China, but also for the rest of the world economy, which is now
depending on China’s shift from industrial production to domestic
consumption. – Project Syndicate
* Jim O’Neill, a former chairman
of Goldman Sachs Asset Management and a former UK Treasury Minister, is
Honorary Professor of Economics at Manchester University and former
Chairman of the British government’s Review on Antimicrobial Resistance.
China’s total economic output grew to $12.7tn in 2017, representing a massive increase of 13% ($1.5tn) in just 12 months.