Breakingviews - Chinese GDP is refreshingly, depressingly honest

A woman wearing a mask walks past the headquarters of the People's Bank of China, the central bank, in Beijing, China, as the country is hit by an outbreak of the new coronavirus, February 3, 2020. REUTERS/Jason Lee

HONG KONG (Reuters Breakingviews) - China’s latest economic statistics look refreshingly honest. The world’s second-largest economy shrank 6.8% year-on-year last quarter, its first contraction since China began officially publishing it. The politicised indicator is usually one of the country’s least reliable, but this one speaks volumes. It suggests Beijing is rethinking its approach to economic guidance.

Economists expected this reading to be grim, but many wondered whether the government would “smooth” the data to make it rosier, as it has in the past. The National Bureau of Statistics, however, delivered an incredibly bleak series of readings on Friday. Not only did output fall slightly more than analysts polled by Reuters predicted, other indicators were gloomy, too. Retail sales fell 15.8% in March, and fixed asset investment tanked 16.1%. The readings followed a similarly brutal set published in February, making it unlikely that the country will hit its official annual growth target of around 6%.

Some blame China for covering up the first phase of the outbreak. But few can accuse the NBS of sugar-coating its aftermath. This may be simple realism: upbeat numbers would only expose Beijing to ridicule and suspicion, while setting a statistically low base for recovery could pay off later. But the ugly data could also serve a wider push by reformers to change the government’s model for managing economic direction.

For example, Friday’s figure implies that China could miss its goal of doubling economic output from 2010 to 2020, a controversial target that Beijing has largely stopped talking up. The next step may be revising down the full-year goal so it is more of a realistic forecast than a performance target for officials, or ditching it entirely.

Ma Jun, a senior academic member of the central bank’s monetary policy committee, has long argued that China should abandon GDP targets. It’s an attitude that’s increasingly shared by domestic economists, who argue that overreliance on the measurement – and on industrial policies aimed at supporting specific industries – distorts the way the country invests. China has world-class transportation infrastructure in many cities, for example, but healthcare spending as a share of GDP is around half the global average, a flaw the pandemic highlighted. Covid-19 has given the government an excuse to revise its approach. Bad news now could be good news later.

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