From George Dorgan:
The best way to push real GDP upwards is, hence, to understate inflation via the GDP deflator. Lombard Street Research assumes that Chinese officials followed that approach:
Via Wall Street Journal Blogs
Lombard Street Research, a London economic research firm that takes a bearish view on China, constructs its own version of the country’s GDP. Lombard’s conclusion: China’s economy grew just 6.1% in the fourth quarter of 2013, year-over-year, down from 7.5% the previous quarter. That compares with the 7.7% fourth-quarter increase reported by China’s statistics bureau, which was down a smidgen from 7.8% in the third quarter.
The main difference between Lombard’s numbers and the official numbers, said Lombard economist Diana Choyleva, is the estimation of China’s inflation. GDP is reported in real—that is, inflation adjusted — terms. If China’s inflation is higher than reported, its GDP growth will be lower.
Read more at China: The best way to manipulate GDP is to lower inflation.
Mark Graph: Table 5 of the national accounts includes the implicit price deflators (IPD) for each term in the expenditure equation for GDP….the big deflationary item was exports….
So we get to the heart of the anomaly: largely because we exported a touch less in volume terms (in Q1 2012 compared with Q4 2011) but at significantly reduced prices, this contributed significantly to an outcome where real GDP grew significantly while nominal GDP stagnated.
via Understanding our price deflationary boom | Mark Graph.
Comment:~ So real GDP growth is not really real. The major difference between nominal GDP growth (1.2% annualized) and real GDP growth (a far more impressive 5.2% annualized) is a fall in the price of exports!
While most analysts pored over the numbers to get a sense of how growth was holding up, at least two spotted a large discrepancy between reported price changes and implied price changes.
The gap is more than just an academic curiosity. It suggests that inflation is a lot stronger than the government has been saying and could explain why Beijing has been so reluctant to loosen policy despite a slowing economy.
….China chalked up an implied GDP deflator of 10.3 percent year-over-year in the third quarter, the highest since it started publishing quarterly growth figures in 1999, noted Wei Yao, an economist with Societe Generale. That was well above the 6.3 percent rise in the consumer price index during the same three months.
Diana Choyleva, an economist with Lombard Street Research, found that the chasm was even bigger in quarter-on-quarter terms: the GDP deflator was up 3.8 percent, while CPI was up just 1.5 percent.
….the gap between the deflator and CPI is usually innocuous, just a couple of percentage points.
via China: the case of the missing inflation | beyondbrics | News and views on emerging markets from the Financial Times – FT.com.