Sunday, 3 January 2010

Who was right and who was wrong on China's economic performance?

Economic analysis should be judged by its accordance with facts. The data is now in which allows a judgement on China's economic growth in 2009. The statistical issue on this is how much above the official growth forecast of 8.0% GDP expansion, made at the beginning of 2009, China will achieve.

This blog has repeatedly analysed that China's economic stimulus package would be successful and that, therefore, China would experience high growth in 2009. This follows from a long term analysis of the success of China's economy. However this blog evidently made no claim to be unique in this forecast and pointed to others who came to the same conclusion including Jim O'Neill, chief economist of Goldman Sachs, Professor Danny Quah of the London School of Economics, Mark Weisbrot of the Centre for Economic and Policy Research, and Yan Wang of BCA Research. If these are among those who made essentially correct forecasts of the success of China's economic performance in 2009 it is also legitimate, and necessary from the point of view of evaluating future analysis, to register those who clearly got it wrong on China's economy. And to ask whether they have changed their analysis which led to these wrong predictions?

First was the International Monetary Fund. In January 2009 the IMF predicted 6.7% GDP growth in China in 2009. In April 2009, by which time China's economy was already accelerating, the IMF revised downwards its forecast for China's economic growth to 6.5%.

In March the World Bank similarly revised down its prediction for China's 2009 GDP growth to 6.5%.

In March 2009 the OECD Secretary-General Angel Gurria stated that the organisation might revise its forecast for China's GDP growth down to as low as 6.0%.

Turning to private financial institutions, and other economic forecasters, it is practically impossible to follow all of these but it is worth making a non-exhaustive list of some of the more striking or widely quoted. One school was, of course, the 'catastrophists' on China. Leading among these were Gordon Chang, who continued to express the thesis expressed in his book with the self-explanatory title The Coming Collapse of China, which in 2002 declared: 'A half-decade ago the leaders of the People's Republic had real choices. Today they do not. They have no exit. They have run out of time.' (pxxiii). This prediction was made as China was about to experience seven years of the most rapid economic growth in the world. In a similar category comes Societe Generale analyst Dylan Grice,who declares that China is the biggest economic bubble in world history.

Turning to less catastrophist forecasters, prior to 23 April 2009 Morgan Stanley's prediction for China's 2009 GDP growth was only 5.5%. On 23 April it raised this to 7.0% - still an underestimate. Goldman Sach's at the beginning of 2009, despite Jim O'Neill's overall positive assessment, projected 6.0% growth in China in 2009 before raising it in April to 8.3%. UBS at the beginning of 2009 projected China's GDP growth to be 6.5% - raising it in April to 7.0-7.5%. This was despite the fact that in November 2008 Tao Wang, head of China economic research for UBS, predicted 7.5% China economic growth in 2009.

Standard Chartered in the first half of 2009 made a 6.8% prediction for China's GDP growth. Ben Simpfendorfer of the Royal Bank of Scotland in December 2008 was projecting China's GDP growth in 2009 to be 5%. Michael Pettis of Beijing University did not give a quantitative growth prediction but made the qualitative judgement that: ''I continue to stand by my comment… that the US would be the first major economy out of the crisis and China one of the last.' In July Stephen Roach, Chairman of Morgan Stanley Asia, declared his view that he was ceasing to be an optimist on China's economy.

China's actual economic out turn in 2009, with GDP growth that will come in even above the official prediction of 8.0%, shows clearly who was right and who wrong regarding China's economic performance in 2009. Those who believed in the strength of China's economy were right. Those who believed either in 'catastrophe' or significant economic slowdown were wrong.

This is not merely an historical question looking backwards. In most cases there is no evidence that those who made wrong projections, which greatly underestimated the strength of China's economy, have corrected analyses which led to these errors. Such analyses, which have been, refuted by facts, therefore cannot be considered reliable for future projections regarding China's economic performance.

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This article originally appeared on the blog Key Trends in Globalisation.


1 comment:

Bemused Economist said...

You will never hear any sense about the Chinese economy from bourgeois economists. If they were to tell the truth, they would have to accept that a socialist economy built upon a majority state-owned sector was the most efficient and impressive way to create wealth yet devised - outstripping even the best-performing capitalist economies by a great distance.

If they accepted that, they'd have to stop being capitalists altogether. So what we get is their stream of snivelling rubbish.

Any country can enjoy China's rates of economic growth. You just have to overcome one small hurdle - the capitalist class and its private ownership of property.