China’s First GDP Miss In 17 Years

For the first time since 1998, China’s GDP came in below the target of the Communist regime, rising 7.4 percent in 2014. The Communist party targeted 7.5 percent, and the market already expected lower growth at 7.2 percent.

Why is this a big deal? The communist regime needs high growth—at least on paper—to keep the people in the People’s Republic happy. In 2010 it said it would need 8 percent to keep employment high and avoid social unrest.

“This is a political number now and it has a political narrative. They are not making the number up out of thin air. There are economic constraints,” says Leland Miller of the China Beige Book, a research firm specialized in sourcing on-the-ground data in China.

Now the regime has already reduced its target, missed it, and the market says growth is even lower in the real world.

Few people take the official statistics at face value for several reasons. First, it is calculated only three short weeks after the quarter ends, and it’s final.

U.S. statistics, also not without flaws, come out one month after the quarter end and are revised twice to get a more accurate picture as time passes. The second estimate is released three months after the respective quarter end.

Because the United States has a much more advanced and developed economy, as well as a longer tradition of keeping score, you would expect it to come up with numbers quicker than China, where Beijing has only a loose overview over what happens in different regions.

Bloomberg, which tracks data such as electricity consumption and rail traffic, estimates growth was 6.82 percent.

“The economy is in deceleration, long term deceleration. Since Q2 there are important components that are doing well. Job growth is stable despite the slow-down. Profit performance at firms has been doing well, both sales and margins. They were better this quarter too,” says Miller.