GDP growth in China 1952-2009

1992 Deng Xiaoping's Southern Tour at the beginning of the year massively boosted foreign direct investment inflows into coastal areas and started a wave of government investment in Shanghai. Record trade and GDP growth and inflation followed.

1993 Zhu Rongji appointed to rein in the overheating economy, this time more selectively than in 1989-91. Growth rates subsided gradually in subsequent years, producing a so-called "soft landing". During the 1990s, living standards continued to rise, as evidenced by the proliferation of consumer durables, especially among the urban population. Continuing FDI inflows helped boost foreign exchange reserves to record heights in the late 1990s.

Especially after the publication of the 1998 GDP figures, economists, both in China and abroad, have raised serious doubts about the quality of China's national accounts, which appeared in the late 1990s to overstate economic growth and are now suspected of understating growth. This may be because the statistical system tends to overestimate output at the trough of the cycle and underestimate output at the peak.

However, the country's first production census discovered at the end of 2005 that GDP has recently been grossly underestimated as a result of a failure to take into account the rapid growth of the services sector. As a result, growth rates for 2003-2005 are now recorded at around 10% per year in real terms.

  Despite efforts to cool the overheating economy, the officially recorded GDP growth rate was 11.4% in 2007.

In 2008 the global economic crisis began to reduce China's growth rate. In the face of forecasts that this might drop below the rate at which school leavers can be absorbed by the growing economy (7%-8%) the government decided to pump Rmb 4 trillion into the economy in the form of an economic stimulus package consisting largely of investment in fixed infrastucture and human capital.

The preliminary estimate for real GDP growth was 9%. This was revised upwards to 9.6% on 25 December 2009, when current-price GDP in 2008 was re-calculated to be CNY31,404.5 billion.

Revised 2008 GDP Data Industry Aggregate in Current Price (100 million yuan) Composition (%) Revised Preliminary Revised Preliminary           GDP 314045 300670 100.0 100.0 Primary Industry 33702 34000 10.7 11.3 Secondary Industry 149003 146183 47.5 48.6 Tertiary Industry 131340 120487 41.8 40.1           Source: National Bureau of Statistics.

In 2009 China's GDP growth rate, though lower than the double-digit average of recent years, has held up well, rising from 6.1% year-on-year in the first quarter to 7.7% in the first three quarters of the year. This means that year-on-year GDP growth was around 9% in the second quarter. A similar rate of growth (9%) is expected in the final quarter, ensuring a rate of over 8% for 2009 as a whole. Following the upward revision of 2008 GDP growth at the end of 2009, there is now a strong expectation that the first three quarters GDP statistics will also be revised upwards, possibly by more than the 2008 figures, so that growth may turn out to have been even higher.

Gross Domestic Product (GDP)  (1-3 Quarters,2009)

Absolute Value Growth Rate over the   ( CNY billion) Same Period Last Year (%)       GDP 21,781.7 7.7 Primary  2,250.0 4.0 Secondary 10,647.7 7.5 Tertiary 8,884.0 8.8       Source: National Bureau of Statistics. Notes: 1. Absolute value is computed at current price, growth rate is computed at constant price. 2. Statistical data in this table are preliminary verification results.

This is an astonishing performance considering that China's major export markets have dried up. Why has it happened? Mainly because of the stimulus package and the accompanying rise in short-term credit (China, unlike the rest of the world, has not experienced a credit crunch).

However, there are now serious fears that this robust growth may not be sustainable. As short-term credits fall due, they will have to be refinanced, and much of this refinancing may have to be done by taking out longer-term loans, raising the banks' non-performing loan ratios and threatening the long-term stability of the financial system. Infrastructure projects brought forward in the plan period will be completed early, leaving a gap while new ones are planned. And the US consumer is unlikely to come to the rescue of the Chinese economy when it slows further.