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How to Measure China’s Real Economic Growth

WHe Li KeqiangBy the time China’s premier delivered his final speech to the National People’s Congress on March 5, it was clear who would succeed him. But the “Li Keqiang Index” has yet to find a successor. The unofficial measure of China’s economic growth was inspired by a leaked conversation between Li Keqiang, then secretary of the Liaoning Provincial Party Committee, and an American diplomat.Mr. Li said frankly that the province gross domestic product Numbers are “unreliable”. Instead, he focused on electricity consumption, rail freight and bank loans. The newspaper took inspiration from Mr. Li and thought it would be interesting to bundle these three indicators into one index to reveal the situation of the Chinese economy on a national scale.

The index has performed well since its launch in 2010. Bloomberg has a version with its own “code”. It inspired a similar index in India. Research teams at the San Francisco Fed and the New York Fed separately tested the usefulness of Mr Lee’s preferred metrics. A 2017 paper by Hunter Clark and Maxim Pinkovskiy of the Federal Reserve Bank of New York and Xavier Sala-i-Martin of Columbia University calculated that the optimal combination of these three metrics gives about 60% weighting to loans and 30% power 10% of the weight is used for rail freight.In a subsequent paper, Mr. Clark, Mr. Pinkovskiy, and Jeff Dawson of the New York Fed suggested using rice2. A measure of money supply, as bank credit data fail to capture the government’s crackdown on shadow lending.

Critics argue that the decline in the energy intensity of the Chinese economy has weakened the index. but it is not the truth. As long as electricity follows identifiable trends, deviations from trends can reveal economic ups and downs. What really broke the Li Keqiang index was the covid-19 pandemic. The declines in retail sales, air travel and the housing market were much larger than declines in industry, electricity use or rail freight. at the same time, rice2 grew rapidly late last year as people hoarded cash.

What are the options? Those who are skeptical of Chinese data are eager to get rid of its statistical system entirely. Perhaps satellite-recorded nighttime light levels could provide a truly independent growth guide? But the measure has its own problems. Newer satellites don’t have long-term tracking records, and older satellites have trouble distinguishing between bright and very bright lights in cities. Coverage also varies from month to month.

Mr. Pinkovskiy and his co-authors turned to nighttime lights, not as a direct measure of growth, but as a way to judge among other potential indicators. If competitors are good at tracking night lights, they should also be good at tracking growth.The authors’ investigations show that, in addition to loans (or rice2), electricity and (to a lesser extent) rail freight, retail sales are a useful indicator. Adding them will certainly make a difference during the pandemic.

There are no diplomatic cables yet to reveal China’s likely indicators of Li Qiang’s favored position as the new premier.He was the secretary of the Shanghai Municipal Party Committee, and the service industry accounts for about three-quarters of Shanghai’s gross domestic product. When Li Keqiang first disclosed the composition of the index named after him, the equivalent figure for the rust belt Liaoning was only 40%. It can be said with certainty that any “Li Qiang Index” will not ignore the service industry, which has undergone tremendous changes in the Chinese economy.

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