The data for the second quarter are more credible. In nominal terms, growth rebounded strongly to 7.1%. The corollary is that the GDP deflator is now 0.1%, a reading that is much more consistent with rising consumer prices and falling producer prices.
Despite the slowdown of economic growth in the world's major economies and the manifestation of various risks, China's GDP grew by 7.8 percent in 2012 and the rise in the CPI (Consumer Price Index) fell back to 2.6 percent. China's annual grain output in 2012 reached 589.57 million tons, registering the second nine-year consecutive growth since the founding of the People's Republic of China in 1949, topping the 500-million-ton mark for six years in a row.
Finance and economics: China's economic data, Right on target. Is growth really 7% a year?
It all seems a little too perfect to be true. The Chinese government set a growth target of “about 7%” this year; the economy, ever responsive to the Communist Party's needs, has hit exactly that number for two quarters in a row. Cue a chorus of skepticism.
The first quarter did look suspicious. Growth in industrial production was the weakest since the depths of the financial crisis; the property market, a pillar of the economy, crumbled. China reported real growth (ie, after accounting for inflation) of 7% year on year in the first quarter, but nominal growth of just 5.8%. The only way to arrive at the higher real figure was to put the GDP deflator, a measure of inflation, at -1.1%.
That implied the economy suffered broad-based deflation, a bizarre claim given that consumer prices rose by more than 1% at the same time. Had the GDP deflator been more accurate, Chang Liu and Mark Williams of Capital Economics reckon, real growth in the first quarter would have been one or two percentage points lower.
There were signs of some tampering: without explanation, the national bureau of statistics cut the quarter-on-quarter growth rate in the second quarter of 2014 to 1.9% from 2%. That doubtless flattered the data for the second quarter of this year by lowering the base for comparison. But the impact is small: a few tenths of a percentage point, perhaps.
What is more, the sources of Chinese growth in the second quarter were less mysterious than in the first. Although investment continued to slow, services accelerated.
Industry grew by 5.9% year on year in the second quarter, down from 6.4% in the first quarter. In contrast, services jumped to 8.9% growth from 7.9% in the first quarter. That matters since services now account for a larger share of Chinese GDP than industry. This acceleration in services is unlikely to last.
It derives to a large extent from the soaring stock market, which boosted financial firms. That lift has presumably become a drag in recent weeks as share prices have dived. Transient as it was, however, China's statisticians did not invent the financial boom.
The financial system functioned soundly. The banking sector became better able to avert risks. Its capital adequacy rate increased from 8.4% at the end of 2007 to 13.3% by the end of last year, and its non-performing loans dropped from 6.1% to 0.95%. We kept a firm grip on the real estate market and kept housing prices from rising too quickly.