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Chinese economic growth

A new study co-authored by Professor Peter Williamson and Simon Hoenderop of Cambridge Judge calls for an alternative ‘bottom-up’ index to measure China’s economic growth.

aerial view of shanghai at night

China’s official statistics on growth in gross domestic product (GDP) – 6.9 per cent in 2017 and 6.8 per cent in the year’s fourth quarter – often spark debate on whether the numbers from China’s National Bureau of Statistics accurately reflect such a huge, sprawling and fast-changing economy.

To address this issue, a study just published in the prominent Journal of Chinese Economic and Business Studies calls for an alternative “bottom-up index” focused on revenue and gross margin at 150 large companies listed on major Chinese stock exchanges. These more transparent measures – from audited public companies reflecting 19 industries ranging from cars to retail to banking – present a more detailed picture of China’s economy.

The findings by UK and Dutch researchers both support and challenge the official Chinese government version of the country’s economic growth: While the study’s new “China-150 Growth Index” closely tracks the official GDP figures over the medium term (the 2010-2016 study period), the new index’s benchmarks suggest that growth in Chinese GDP has been “more volatile between years” than reported in official figures. This was due in part to short-term effects of price movements and supply-demand shifts in different industry sectors, as reflected in the new index’s negative recorded growth in some quarterly periods for metals and mining, insurance and financial services.

“These results would suggest that financial markets and other interested parties should take the officially reported rates of Chinese rates of growth as serious indicators of the actual economic situation over the medium-term,” the study says. “At the same time, our findings would caution against too much reliance on reported numbers quarter by quarter and even year by year. It would seem prudent to compare the reported growth rates with alternative benchmarks, including those developed in this paper, in order to reach a more informed understanding of short-term economic developments in China.

“One interpretation of this result is that the statistical methodologies used in China result in a degree of smoothing between quarters and years in the reported GDP numbers,” the study says.

Professor Peter Williamson

Professor Peter Williamson

The study – entitled “An alternative benchmark for the validity of China’s GDP growth statistics” – is co-authored by Professor Peter Williamson of Cambridge Judge Business School; Simon Hoenderop (ALP alumnus 2015), an economist who previously worked at Royal Dutch Shell and spent a lot of time in China; and Jochem Hoenderop, who is currently studying at the Amsterdam School of Economics.

“The study’s findings are significant to asset prices and the real economy,” says Peter Williamson, Honorary Professor of International Management at Cambridge Judge Business School, University of Cambridge. “Financial markets tend to react strongly to even small changes in the quarter-by-quarter or year-by-year GDP growth reported by China’s National Bureau of Statistics. The study suggests that investors should be more cautious in interpreting these official statistics, and that it would be prudent to also look at alternative measurements.”

Compound annual growth rate (CAGR) as measured by the China-150 Growth Index was closely aligned with the official nominal GDP figures in 2011-2016: revenue growth of 10.3 per cent was exactly the same as the official GDP figures of 10.3 per cent (year-on-year variations averaged less than 0.1 per cent), while gross margin (revenue less cost of goods sold) at 10.8 per cent was 0.5 per cent higher than the official GDP rate. The study’s new revenue and gross margin indices also closely tracked the official numbers for US GDP growth 2011-2016 when back tested on American data, reinforcing their usefulness as a benchmark. The Growth Index is compared with nominal GDP (not corrected for inflation) to which corporate earnings are more closely tied.

While relying on 150 large companies excludes small businesses and unlisted firms, the new methodology can capture growth variations across industries and “thus shed light on the important question of how the structure of the Chinese economy is changing.” Retail, technology, real estate and healthcare were the fastest-growing sectors; banking and insurance showed above-average though volatile growth; while slightly below-average growth was found in utilities, construction, and food and beverage, the study found. Chinese retail grew almost six times the speed in the US between 2011 and 2016. These results point to the rapid shift towards services as the prime driver of growth in China as well as much more rapid adaption of e-business and mobile technologies in retail and financial services compared with the US.

The study notes that the market capitalisation of all listed companies equated to 65 per cent of China’s GDP in 2016. The total revenue of the 150 companies selected for the study represent 23 per cent of Chinese GDP, underlining the significance of the sample. The 150 companies (which exclude five big oil and gas firms because their inclusion would have overstated the energy sector’s importance to the overall Chinese economy) all publish annual reports, issue quarterly results announcements, each had revenues of at least RMB 10 billion (about $1.5 billion) in 2015 and 66 per cent were audited by one of the Big-Four accounting firms.


Simon Hoenderop worked overseas for Royal Dutch Shell and made numerous visits to China and the Far East. He holds a Master degree in Business Economics from the University of Groningen, and is an alumnus of the Advanced Leadership Programme of the Executive Education division of Cambridge Judge Business School.