‘Realistic’ GDP Growth Rate Closer To 2%-2.5%

• Some academics and economists have argued in the past decade that China officials have been overstating the country's GDP growth rate and therefore have been trying to come up with an alternative measure that tracks the economic activity more closely.
• For instance, China research institute and think tank CASS previously mentioned in one of its publication that a better proxy for China GDP growth could be obtained by multiplying the Industrial Production YoY growth by 0.7.
• The chart below shows that the two times series, China GDP and 0.7*IP, co-moved strongly between 1990 and 2010 but have been constantly diverging in the past cycle, leading to speculative of an ‘inflated’ GDP figure reported by China officials.
• Interestingly, we have seen that China officials still have not readjusted their growth target of 5.5% for 2022 while sell-side institutions have now nearly ‘halved’ their forecasts.
• Economic data showed overnight that industrial production (YTD) decelerated to 3.3% YoY in May (down from 4% the previous the previous month), which would imply that the current ‘realistic’ level of growth in China is closer to 2%-2.5% than 4.8% reported in Q1.
• Other real-time indicators such as the Li Keqiang index or China 10Y yield have been also pricing in a significant lower growth as the zero-Covid policy have been dramatically weighing on the economic activity.

Source: Bloomberg/MNI