China Will Revise Its GDP Definition Until Its Hits Government "Growth Targets", Goldman Explains

From Zero Hedge:

Moments ago, in an example of "very serious phrasing", none other than the bank that does god's work on earth (especially when it means providing off balance sheet financing for the bank of the Holy Spirit), just reported that the reason why China will hit its growth target is because of, drumroll, its fudged GDP. Only Goldman is far more serious when it says all of this, with the result being just too hilarious for words: to wit: "In the coming months, China’s National Bureau of Statistics is to make adjustments to the methodology used to calculate GDP. These adjustments are likely to boost real GDP growth by 0.1-0.2pp, thereby making it easier for the government to reach its goal of “around 7.5%” GDP growth in 2014."

The effects on China’s GDP growth rate of adopting the SNA 2008 is likely to be at least as significant, given that China's R&D expenditure growth has been particularly fast (Exhibit 1).



The rapid growth in R&D likely reflects the government's strong focus in this area, and may explain why China's GDP growth rate accelerated strongly in 2009 even as growth rates in most other economies suffered significantly. Private investment has also contributed, as the private sector has been able to take advantage of the large and relatively cheap talent pool in science and engineering. But private investment probably still plays a secondary role, especially given that the protection of intellectual property rights (IPR) has only just started to improve.

Those sceptical of China's economic model may question the impact of increased R&D expenditure, since investment expenditure does not necessarily form capital if it is not used efficiently. However, the same could be said about other fixed investment expenditure, and we have seen no evidence that China’s R&D expenditure is spent less efficiently than other fixed investment (although this does not imply that the level of efficiency itself is high or low). Indeed, the number of patents has increased rapidly in recent years, which we view as a reasonable way to judge the impact of R&D in China (Exhibit 3).

Exhibit 3: ... and in patent filing



Source: OECD, China national bureau of statistics, US national science foundation

http://www.zerohedge.com/news/2014-09-02/china-will-revise-its-gdp-definition-until-its-hits-government-growth-targets-goldma