The median estimate in the Journal’s poll put growth in China’s gross domestic product in the fourth quarter at 10.1% over the previous quarter on an annualized, seasonally-adjusted basis—the way that most major economies measure growth. That’s down from the median estimate of 10.7% growth for the third-quarter.
China’s statistics bureau reports GDP growth in year-on-year terms, and the difference can be significant. It said last month that the nation’s GDP grew 10.7% in the fourth quarter from a year earlier, a growth rate that accelerated from the third quarter’s 9.1%. Even before those strong numbers were released, China’s central bank had already signaled a new and tougher stage in policy by starting a series of increases in banks’ reserve requirements, measures that reduce funds available for lending.
But at turning points like these, year-ago comparisons aren’t that helpful: they just show us China’s economy is now doing much better than it was during the depths of the financial crisis in late 2008. What’s more important is how the economy is doing now relative to a few months ago. That’s why the U.S. and most other big economies also use the quarter-on-quarter, seasonally-adjusted measure (Ma Jiantang, the head of China’s National Bureau of Statistics, has said his agency will start publishing such estimates this year.)
The Journal has been trying to help fill this gap by regularly polling economists who make their own estimates of quarter-on-quarter, or sequential, growth. In the latest poll, eight of the ten economists who responded thought growth in the fourth quarter was slower than in the third quarter, and most are forecasting a further gradual slowdown over the rest of 2010 to around 9%.
China’s policymakers are well aware that year-on-year comparisons will flatter current growth rates. The importance of using sequential estimates of economic growth was recently highlighted by Premier Wen Jiabao himself.
“We must take full account of the base effect from last year, strengthen the sequential analysis of major economic indicators and closely follow changes in market demand, in order accurately appraise the trend and make macroeconomic policies more targeted and effective,” Mr. Wen said at a State Council meeting on Jan. 19, according to a government statement (in Chinese: here)
But on which set of sequential estimates will the government base its policy? As with our previous surveys (in November and July), economists’ estimates varied widely—a sign less of sharp professional disagreements than of the incomplete data they have to work with. The difficulties were aggravated this time by the National Bureau of Statistics’ recent revision of GDP estimates for 2008, which the bureau has yet to fully reconcile with previously-published figures.
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Complicating the picture further are newly-revised quarter-on-quarter growth estimates from the People’s Bank of China (in Chinese: here). These show a remarkably smooth trajectory: After bottoming at 4.3% in the fourth quarter of 2008, annualized growth had recovered to 11.4% by the second quarter of 2009, eased to 11.0% and then picked up again to 11.3% in the fourth quarter.
That’s quite different from what most economists in our poll think happened: a growth surge in the second quarter last year as the stimulus hit, and then a gradual slowdown as its impact waned (see chart). While the central bank’s previous estimates had been within the range of figures that other economists had come up with, several private economists told us they did not understand how the central bank had arrived at its revised figures.
If policymakers are focusing on the acceleration shown in both the headline year-on-year growth rates and in the central bank’s quarter-on-quarter estimates, they could be more willing to take aggressive measures to slow economic growth. But many analysts believe China’s economy is already cooling off: authorities have been slowing down new bank lending since the second half of 2009, and growth in new infrastructure projects and real estate sales is also down.
The respondents to our latest survey include economists on the staff of Bank of America-Merrill Lynch, Capital Economics, China International Capital Corp., Citigroup, Deutsche Bank, J.P. Morgan Chase, Morgan Stanley, the Organization for Economic Cooperation and Development and Standard Chartered Bank, as well as the independent economist Albert Keidel.
– Andrew Batson