GDP In China Does The Emperor Wear Clothes?

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Global Trade, Macroeconomics

I am reminded of a project I once worked on back in my Big 5 consulting days. A team of consultants “landed at the client site. The object of the exercise – identify as many millions of dollars of savings as possible. Plenty were identified. But obtaining those savings involved quite a few assumptions. And many of those assumptions, were, well you can guess the next part, entirely wrong. I can’t get into the specifics because I have to protect the innocent. Nobody, however, wanted to tell the truth to the senior partner in charge of the account the savings as identified, could not get implemented. Why you may ask? That would make for too long a story but suffice it to say, all were afraid to tell the partner what they didn’t think he wanted to hear. In other words, nobody wanted to suggest to him that the emperor had no clothes.

And that my friends, is the theme of what I write on these virtual pages today. I’m not going to win a popularity contest with this post today. I accept that fact. I also know that I am not xenophobic. But I am going to go out on a limb and call it the GDP growth in China that everyone is excited about is not real. It’s a lie, a big, bold fat lie. Here is why. Several days ago, a MetalMiner reader commented on one of Stuart’s posts, asking how many commodities were consumed by China to build this city as reported by Al Jazeera. (You have to watch this video, it’s shocking):

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A colleague of mine from China recently came for a visit and I showed both he and his associate (in the steel wire industry) the video and asked them for their impressions of GDP growth in China. My colleague said, “The only people who have benefited from China’s growth in GDP are Chinese citizens with good government Guanxi. Guanxi refers to “connections. In other words, if a person has good connections to receive government stimulus dollars for infrastructure build-out, construction etc then they have benefited from the GDP growth. But for the working class masses, 2009 remains a horrible year. Everybody we talk to says they have had “very bad luck in 2009.

Now wait a second you might say. Many poor farmers received incentives to purchase televisions and other major white goods as the story above depicts. Didn’t all of them benefit along with car buyers from the government’s stimulus programs? Not so, according to my colleague. Stores jacked up their prices by the amount of the “incentives to ensure they would not lose money on the purchase. It’s like getting a manufacturer’s rebate of $200 off a computer but the computer maker actually raised his price $200 in anticipation of the rebate.

Toyotas, Hondas, Volvos and many other cars have much higher price tags in China then they do in the US putting car ownership outside the hands of still many. Real estate has become astronomical in many major Chinese cities and even quite high comparatively for very minor third and fourth tier cities. The average man, the middle class man, continues to struggle as GDP growth escapes him and his ability to improve his lot in life. All this hype about China eating our lunch or  China’s GDP numbers are no fluke, well, I say hooey.

This is contrived GDP. If a tree falls in the forest and nobody hears it, did it fall? If GDP grows but a small few benefit, can we call it real?

–Lisa Reisman

Comments (4)

  1. Andy says:

    Honey…real wages for the majority of people in the US haven’t changed in the past 30years…

  2. fran says:

    the commentary on rising GDP and impact on population in china holds for the usa also. lies, lies, and more lies in both nations.

  3. yyy says:

    real wages haven’t changed much but real compensation has. Mostly health and retirement benefits

  4. RRR says:

    GDP = Consumer Consumption + Industrial Investment + Government Spending + Exports – Imports. The problem is that it can be easily manipulated by the government. All they have to do is increase their spending and/or print a bunch of money and give it to consumers and industry to spend. Then Shazam! GDP rises. Oh, I am quite sure that their GDP went up as they stated, but I am also positive that the country (and the world) is worse off for it.

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