China's economy is better than what economists can measure

Editor's note: Daryl Guppy, a special commentator on current affairs for CGTN, is an international financial technical analysis expert. He has provided weekly Shanghai Index analyses for media in the Chinese mainland for more than a decade. Guppy appears regularly on CNBC Asia and is known as "The Chart Man." He is a former national board member of the Australia China Business Council. The article reflects the author's opinions and not necessarily those of CGTN.

Remember when there were multiple staff in accounts departments calculating employee pay?

Then someone had to take an hour or so to go to the bank and collect cash. In a locked office, the cash was counted into individual pay packets for each employee. Then employees had to go to the bank to deposit their wages. Even for more efficient firms which paid by cheque, several staff were required to print and authorize each one.

How times have changed.

Hours and complex payrates are calculated by software – and automatically integrated into the full company accounts. No cash is collected from the bank, and wages are paid by electronic transfer in seconds. Employees access their pay via electronic banking or WeChat Pay.

Productivity has increased, but how is this accounted for in the national GDP accounts? It is not effectively measured.

Today many employees have what the Americans call a side-hustle. It may be selling goods on WeChat, promoting products as an influencer on TikTok or earning income from a second job or hobby that reflects their passion.

"We can't trust the economic data anymore," Paul Donovan, the chief economist at UBS Global Wealth Management said during a visit to Sydney.

"So much structural change is happening, which we're missing. We're missing a lot of the ability to measure productivity gains that are taking place, we're constantly underestimating economic activity, which means we're underestimating productivity gains."

None of this changed activity is recognized when the national GDP accounts are compiled. We still use the traditional measures of economic activity, counting steel production, electricity consumption and retail sales from registered businesses. 

However, there is an entire sub-economy that is undefined and unrecognized in the GDP figures.

The advanced digital economy in China brings together both of these factors but the economic figures used to compile GDP measures do not reflect this transformation. Figures collated for the Purchasing Managers Index (PMI) are accurate, but they no longer reflect the significant scope of new digitally enabled economic activity, let alone the impact on productivity.

Donovan uses himself as an example of this statistical mismeasurement. He's a voluntary academic, a self-employed hobby farmer and a published author. But it's only his UBS role as chief economist that's captured in official economic data used to calculate the GDP figures.

Whilst the diverse nature of his work is not replicated in all industries, it is becoming increasingly possible for large sections of the economy. The COVID-19 pandemic lockdowns accelerated this realization and accelerated the application of the digital economy. Increased productivity as a result of the digital economy is China's preferred path out of the so-called middle-income trap.

Flexible work has changed the shape and nature of the labor market, but we are not recognizing the productivity gains of, for example, a mother who can now be more productive in a higher paying job because she can work flexibly.

Across all advanced economies there is a rise in self-employment. Donovan notes the fourth industrial revolution might ironically take us back to a world when people worked from home, worked for themselves, and operated in local economies. The self-employed save differently, for example, and in a way that might be missed in official data. Those who work from home are less of a drag on the resources of society. But none of these changes are captured in the way we traditionally measure GDP and economic growth.

The failure to measure these changes matters. The GDP figures do not capture these dramatic changes in productivity. This applies particularly in China, where the digital economy is the most advanced in the world. The result is that the traditional measures of GDP and productivity do not reflect the true economic situation. This mismeasurement feeds the Western narrative that the Chinese economy is in trouble.

The reality is that the Chinese economy is undergoing a substantial change in its structure. It's a change not seen to the same degree in other economies. The digital shift is nudging the Chinese economy in new directions. The pivot rests on the ideas of dual circulation and common prosperity. The third plenary session of the 20th Central Committee of the Communist Party of China supported deepening reform with further commitment to this economic change.

Donovan calls this the fourth industrial revolution and the new digital economy is going to require new measures of success because the existing GDP measures are no longer fit for purpose. Until they change, the real growth in the Chinese economy will not be measured accurately.

(If you want to contribute and have specific expertise, please contact us at opinions@cgtn.com. Follow @thouse_opinions on Twitter to discover the latest commentaries in the CGTN Opinion Section.)