A Chinese Economic Mystery
By Isaac Cohen*
In July, a team of economists from the Federal Reserve Bank of Atlanta, working with Chinese government officials, released a model which forecasts more accurately gross domestic product (GDP) growth and inflation in the Chinese economy (https://www.frbatlanta.org/-/media/Documents/research/publications/wp/2016/07.pdf).
Spectacular double digit growth rates, during the last 20 years, pushed the Chinese economy from ranking eight after Brazil in 1995, to become the second largest economy in the world in 2015, only behind the United States.
The Chinese economy is undergoing a slowdown caused by external factors, such as the slow growth in the advanced economies, together with domestic factors, such as demographic changes resulting from the one child policy and the graying of the Chinese workforce. The new model confirms that future growth of the Chinese economy will be L-shaped and that, as of 2020, the Chinese growth rate will be of around 5 percent yearly, less than half of the spectacular double digits of the last twenty years.
However, as in theology, in economics there are also mysteries, derived from insufficient or unreliable data. One of the mysteries of the Chinese economy, identified by the authors of the new model, has to do with the size of the heavy industry sector, mostly owned by the state in a still centrally planned economy.
*International analyst and consultant. Commentator on economic and financial issues for CNN en Español TV and radio. Former Director, UNECLAC.