Guest Contribution: “China’s Q3 GDP Reportedly Slowed to 6.5%. Or Is It 6.4%?”

Today, we present a guest post written by Jeffrey Frankel, Harpel Professor at Harvard’s Kennedy School of Government, and formerly a member of the White House Council of Economic Advisers.

Headlines today note a further slowdown in China’s growth. Newly announced GDP data give a preliminary estimate of 6.5 % in the 3rd quarter of 2018, relative to Q3 of 2017. The growth rate had been 6.7% previously.

The change is part of the long-term slowdown that, perhaps inevitably, followed the spectacular 10% average growth rate achieved by China from 1980 to 2010.

One thing that interests me in the reports is a particular (very wonkish) detail. For the US and most other countries, the quarter’s GDP is routinely reported relative to the preceding quarter, not relative to four quarters ago. Why do the media and markets routinely focus on the 1-quarter growth rate for the US but focus on the 4-quarter growth rate for China?

It is not because China’s National Bureau of Statistics fails to make the 1-quarter change available. It’s there in footnote 2 of the NBS press release, as usual. The number for the 3rd quarter relative to the 2nd quarter is 1.6 per cent; to express that in terms comparable to US growth numbers, it is 6.4 % annualized. In other words it is slightly lower this time than the 6.5% number everyone is focusing on.

This puzzle is a case for behavioral finance. When the statistical agency has a practice of putting the 1-quarter or 4-quarter number at the top of the press release, that is the number to which the wire services, the rest of the media, and even the financial markets pay attention.

This phenomenon is not peculiar to China and its GDP statistics. Ayako Saiki and I look at the reports of inflation numbers in “Does it Matter if Statistical Agencies Frame the Month’s CPI on a 1-month or 12-month Basis?” In the United States, the Bureau of Labor Statistics consistently reports the 1-month change in the CPI on its web page and in the first sentence of its press release. The 12-month change is reported in the second sentence of the full press release, but apparently many readers don’t get that far. The wire services Bloomberg/World Process and Reuters tend to give greater emphasis to the most recent month’s number from the US, and somewhat less to the 12-month inflation rate. Most other countries do this differently. Canada, Germany and the UK emphasize CPI changes on a 12-month basis in their official statistical reports. Correspondingly, the 12-month change is what gets the emphasis in the wire service reports.

Surely efficient financial markets see through this, since each national statistical agency makes all its data available at the same time? No. The bond markets tend to react to whichever number, 1-month or 12-month, the statistical agency emphasizes at the top of its press release. In theory such a small detail in government agency reporting practices shouldn’t make a difference. But it does.

This post written by Jeffrey Frankel.

48 thoughts on “Guest Contribution: “China’s Q3 GDP Reportedly Slowed to 6.5%. Or Is It 6.4%?”

  1. John Hall

    I’m not sure I agree with Mr. Frankel.

    First of all, many financial market participants will just look at the ECO function on Bloomberg to see the results, rather than read the actual press release.

    The “four quarter” number is typically referred to as year-over-year or YoY. It’s actually quite common for European and Japanese GDP statistics to emphasize the YoY over the QoQ annualized numbers (well they actually rarely emphasize the QoQ annualized number, it’s usually QoQ). One reason for emphasizing YoY in a country like China is that they have long holidays certain times of the year. To calculate QoQ numbers sensibly, even beyond normal seasonal adjustments, they need to make working day adjustments. Some Latin American countries don’t even seasonally adjust key statistics. So something like the unemployment rate you have to compare to the levels from a year before.

    On inflation, the 12-month change (also called YoY) is a big focus for the market, regardless of what the press release emphasizes. That being said, it’s quite common to compare both the MoM and YoY numbers to market expectations. Sometimes there might be a small MoM change, but a big YoY change due to what we call base effects (some earlier MoM change fell out of the calculation).

  2. pgl

    When I was in graduate school, I was trying to piece together macroeconomic data for the Group of Ten for a research project. Back in the olden days (Carter was President), getting data was not as easy as it is today. But when did have access to the macroeconomic data ala the IMF. Most nations headlines nominal GNP data which one could readily deflate to real GNP data but their reporting for Sweden was different. They headlined real GNP figures instead.

    Given the massive nominal confusion we see in Trump world (see CoRev and his buddies as well as the Administration flacks who tell us that nominal tax revenues rose last year by 0.4%) maybe we should return to how the IMF used to treat Swedish data and apply it to all nations!

      1. Moses Herzog

        FWIW coming from the goofball white guy degenerate, I lived on the mainland awhile and have some different opinions on it. The first thing I would say is I lean much closer to Menzie’s side on this than to Sammy’s side. Having said that, I have one strong opinion, based on my own eyeballs’ observation, on the singular issue which hurts China above any other (with the possible exception of public education). The free flow of HUMAN capital within their own domestic markets. I had students from “the country side” of China, rural areas, who were far superior students to their city-born counterparts. Many born in the city came from upper-middle class families or upper-class families and were lazy as hell (think age 18 donald trump New York Military Academy level here).
        The ones from the countryside were from poor families, but worked hard, studied hard, and seemed to have better personal gauges on what was important in life (think age 18 Ellen Pao here). But often the lazy city kids got jobs that “the country side” Chinese (more intelligent, knowledgable, and harder working) could only dream of getting. Why?? City work permits.

        Now it’s been awhile since my time in China, this policy on the extreme difficulty of country-side students to get city work permits may have changed—I venture to say though, 98% odds that it has NOT changed. Why do I think that?? Because just as a few years ago Southeast Asians and Jews who were far superior students to their white counterparts (at least in the effort dept, and prior attained knowledge base) played hell getting into Ivy League schools in America. Similarly, those Chinese politicians (many from city backgrounds with city-born children) are not going to change a state policy that, if changed, would punish their own lazy-assed spoiled progeny by opening up jobs to hustling (and sharper-minded) rural Chinese students.

        This means many city-born Chinese get rewarded for sitting around thinking “Am I great or what???”. And country-side born Chinese breaking a sweat for slave wages thinking “Why the hell did my parents tell me to bust my butt studying to live like this?!?!?!?!?!” Which does nothing to help the development and progress of China.

          1. baffling

            while still in place, if you notice the chinese economy has certainly opened up in the entrepreneurial department in the past two decades. this has helped to provide alternative outlets for those bright countryside students. they still can’t get the cushy state jobs in the city, but they do seem to have some access to other paths forward. the startup tech economy only succeeds on merit, not where you were born. i don’t see the permit system going away, as it would create a lot of social upheaval in the cities-something china has no desire to deal with at this time.

    1. PeakTrader

      Sammy, you’re correct, 1.3 billion Chinese, or over 90%, are very poor.

      It’ll all end badly, because poor people cannot support a large and growing retired and disabled population.

      That’s why China is desperately stealing and coercing as much IP as possible from other countries.

      It has to gain at the expense of other countries to compensate for its poor economic policies.

      1. pgl

        All China bashing all the time. Of course one path to higher incomes is allowing the nation to use modern technology. But your incessant tirade is that they should not be allowed to do so. Yea we know Peaky – nonwhite people scare you.

        1. PeakTrader

          Pgl, like the communists, you ignore IP legal rights and protections, and need to divide people by race, while calling others racist.

          1. pgl

            Peaky – if you think I’m ignoring IP then you flunked preK reading. No – I just get the economics of monopoly power. You don’t. As far as race – there is a lot of IP “theft” done by white nations and you never whine about that. How come? Oh yea – you think white people are the only ones who deserve to exploit technology.

          2. pgl

            BTW – you are ignoring what I wrote about BeiGene and WuXi. Interesting – if a Chinese company does successful R&D, PeakTrader pretends it does not exist.

      2. Benlu

        “Sammy, you’re correct, 1.3 billion Chinese, or over 90%, are very poor.”

        Peak, could you please tell trump team not to waste their time on poor China.

    2. noneconomist

      Maybe one of these days they’ll catch up to Peak’s home country–mother Russia–which is attempting to gain on those countries directly above it: Romania, Croatia, Costa Rica, and Poland. Hard work may one day bring them closer to Latvia, Lithuania, and Trinidad Tobago. And, who knows, maybe one day they’ll close that $13K/year gap with Slovenia.

  3. pgl

    For those of you who have noticed how PeakTrader thinks the Chinese cannot do R&D, take a look at this recent discussion:

    “Without a doubt China has become one of the most important markets for pharma companies, given the vast patient population and the rising cancer rates. And it seems that western pharmaceutical companies are making greater inroads there.According to an August report in the Financial Times, since 2012 research and development cooperation between U.S. companies and China are up 70 percent. The Chinese biopharma market is booming as more and more companies eye breaking into that rich market. With that increase in cooperation, there has also been an increase in patent approval in China – but the majority of those have been made by western companies in the Chinese market or were made by Chinese universities without an eye for commercialization. A recent report by IAM, an organization that tracks intellectual property news, noted that Chinese biotech innovation “has yet to make its stamp on the global market.” But that may be slowly changing as companies like BeiGene and WuXi Apptec make inroads into the western markets.”

    Yes Western pharma does well selling products to Chinese customers. AND two of the emerging giants in pharma research are Chinese companies. I’m sure this reality is going to blow PeakTrader’s mind as he has never had a clue about anything – especially pharma R&D performed in China!

    1. pgl

      Uh Sammy – many of these nations have lower population growth rates than we do. You should be doing this in real per capita terms.

      But yea if we increase our population growth, then real GDP growth will rise even if real income per capita falls. Gee – then we too can be China!

        1. pgl

          Your link shows the growth rates for only one year (2017). Not necessarily representative of population growth over the long-run. Now I provided an over time source for Germany and FRED does this for the US:

          Like I said Sammy – your research skills are dreadful. And of course one needs to do this over time as people born in the last year are not exactly in the work force yet. I guess you would not know that as you probably do compete with kids who have yet learned to tie their own shoe laces.

          1. sammy

            Using your links, the population growth rate in the US is virtually unchanged from 2011 to the present. Germany has barely fluctuated since 2000. What exactly is this supposed to add to the analysis?

          2. pgl

            “Using your links, the population growth rate in the US is virtually unchanged from 2011 to the present.” – Sammy

            It was much higher before 2011. Now if your firm is hiring 7 year olds then maybe you have a point here. But then higher second graders just might be illegal. OK – the kids have more education that you do – so go for it!

      1. PeakTrader

        Of course, Germany and the U.S. are equally productive per hour worked. However, the U.S. leads the world in the Agricultural-Industrial-Information-Biotech Revolutions, while Germany is more into manufacturing and government with smaller consumption as a percent of GDP.

        1. pgl

          LOL! Sammy asks for a theory since he cannot articulate basic facts properly and PeakTrader delivers. Of course PeakTrader does the Fox and Friends University version of “economics”.

      2. noneconomist

        And that was after PT talked to A GERMAN who PT believes represents the views of 80.6 Million Germans. Can’t beat that” thinking” no matter how hard you try.

          1. noneconomist

            I talked to a Arizonan who said he pays a lot for electricity, especially in the summer.
            I also talked to a Alaskan who said he pays a lot for electricity, especially in the winter.
            Maybe their electric rates would be better if they lived where your German lives.

          2. Ulenspiegel

            Look Peak Trader, do not cite data you obviously do not understand.

            Hint: The avaerage German household consumes much less electrcity than its US counterpart, therefore, the monthly bills are not that different. And check generated GDP per unit energy, even you may learn something. 🙂

          3. baffling

            already pointed that out to peak. he has a habit of ghosting when his talking points are shown to be false, or at best, intentionally misleading.

        1. PeakTrader

          And, it should be noted, the average square feet of a U.S. home is larger than in Canada and much larger than in Europe.

          1. baffling

            actually, a larger square foot home is simply a larger maintenance cost. higher insurance. higher heating and cooling costs. larger homes are simply more costly peak. but they make for larger mortgages. as a failed banker, that was probably most important in your assessment here, right peak?

            regarding germany, their energy rates may be higher, but they also consume about half as much energy per capita as in the us. guess there is a downside to those mcmansions you are advocating peak. rates are not everything.

    2. Ulenspiegel

      “The US must be doing some things really right.”

      The propaganda is now quite good, people like you not only swallow it without problem, they actively sell it in a very uncritical way and, the icing on the cake, pay for the nonsense. Respect.

    3. 2slugbaits

      sammy Please learn how to use and understand data. The correct way to look at productivity growth rates across countries is to look at labor productivity per hour worked. Why look at things this way? Because workers in many European countries prefer to take their income in the form of leisure rather than money. The labor/leisure choice reflects a difference in taste rather than a difference in how productive workers are while actually at work. The OECD reports hourly productivity data:
      The US is not particularly outstanding in that regard.

      And notice that PeakTrader’s preferred measure (size of house, size of car, size of yard, size of hands…) reflects his personal uncultured and Philistine tastes. He also probably thinks Donald Trump’s private residence in Trump Tower is tastefully decorated.

          1. sammy

            “The correct way to look at productivity growth rates across countries is to look at labor productivity per hour worked.”

            I agree with you. But heretofore the measure was GDP growth. You keep moving the goalposts.

      1. sammy

        “Because workers in many European countries prefer to take their income in the form of leisure rather than money. The labor/leisure choice reflects a difference in taste rather than a difference in how productive workers are while actually at work. ”

        In addition marginal tax rates in Europe are higher than the US, reducing the incentive to work harder/longer.

        1. noneconomist

          Always an interesting take: i.e., higher marginal rates reduce incentive to earn MORE. I’ve had this discussion more than once. In practical terms, it makes little sense. Why?
          Well, consider. If you file jointly, and your combined TAXABLE income is $100,000, the additional federal tax on another $100,000 would be 2%–from 22% to 24%– (unless I’m reading 2018 brackets incorrectly).
          If you live in a high tax state like California, the additional state income tax would add another 1.3%. If you live in a state with no income tax (e.g., Washington, Texas, Florida…) there is no so-called disincentive. Seems those who would turn down the opportunity to earn another $ 100K would not be deterred by losing another 2+% (plus state tax) in taxes.
          Must be some reason a Clayton Kershaw would prefer $30 million/yr. to MLB average of $4.1 million. Lots more due in taxes both federal and state, no?

        2. baffling

          “In addition marginal tax rates in Europe are higher than the US, reducing the incentive to work harder/longer.”
          i have never encountered a prosperous worker, in those higher tax brackets, who actually did no more additional work because they did not like the tax rate. not once. ever. they may complain about the tax rate, but they have never turned down the opportunity for more profits. ever. this is a false argument.

          if it were true that the wealthy who are getting hit with higher marginal taxes were to quit working, then so what? that simply gives another person down the food chain the opportunity to complete the work and make more money. from the economy’s perspective, not much is lost. but i must ask a deeper question. if this behavior does indeed occur, why would the governments even consider progressively higher marginal rates? because the original worker who stops was paying taxes at a higher rate. his replacement, one would assume, is working for less money at a lower tax bracket. so this policy effectively would reduce the amount of tax revenue that a government collects. from this perspective, one should expect higher rates reducing tax revenue, with lower tax rates increasing tax revenue in these circumstances. and yet that does not appear to be what happens. why? because none of those wealthy cut back on profits simply because they are taxed at a slightly higher rate. it simply does not occur. certainly not at the tax rates we currently have in the us and around the world.

  4. PeakTrader

    Pgl’s poor research ignores U.S. Biotech firms lead the rest of the world combined in revenue and profit. Also, U.S. Pharma is a very large percentage of the global market. You’re article shows Western and Chinese firms are getting patents in China, and it looks like with forced technology transfer.

    Pgl doesn’t care tens of thousands of Africans die each year from Chinese counterfeit drugs. I’m sure he’s pro-abortion too. Pgl is unaware of his other racist tendencies.

    It seems, Communist China began an opium war against the U.S., perhaps to get back at the British or just profiting on more death.

  5. PeakTrader

    The only way to move from prior economic revolutions into new economic revolutions is through productivity to free up limited resources.

    In agriculture and industrial production, U.S. output to labor is very high, which has freed up labor to move into emerging industries.

    Consequently, the U.S. leads the rest of the world combined in the Information and Biotech Revolutions, and as productivity increases, in those revolutions, resources can shift into new economic revolutions.

    And, of course, the U.S. consumes more than produces in the global economy and in the long run, which further raises living standards.

    1. pgl

      “The only way to move from prior economic revolutions into new economic revolutions is through productivity to free up limited resources.”

      But you would deny the Chinese modern technology. Why do you hate Asians so much? Did one steal your only girl friend or what???

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