Nominal vs. Real GDP Growth Of China

Here’s a little follow-up on the Chinese GDP numbers yesterday.

The growth figure produced by the National Bureau of Statistics (i.e. that 9.1% number) is growth in real term, not nominal term, one point that some people have been confused every now and then.  The nominal yoy change for Q3 GDP was actually 21.3%.  That would mean that the implied GDP deflator yoy change is about 11.2%, rather than 6.1% we have got from CPI inflation.

Yes, things don’t add up for Chinese Statistics.  The charts below show that Real vs. Nominal growth of the Chinese economy, and GDP deflator vs. CPI inflation.  As you can see, the CPI inflation has been consistently below the inflation rate as implied by the implicit GDP deflator (as implied by the gap between nominal growth rate and real growth rate) for the past 10 years or so.  On top of that, the gap between GDP deflator implied rate of inflation  and rate of CPI inflation has been widening of late.

Source: National Bureau of Statistics

There are a few possibilities.  Either the basket of things for GDP deflator is so different from that of the consumer, such that prices in the GDP basket, possibly more geared towards fixed asset investments, are rising much more rapidly than consumer price, which is not impossible.  Or else, it signals that consumer price inflation is actually much worse than the official CPI data suggested, which is also not impossible.  Or indeed, both are happening.

Another curious thing is that even though growth in real term has been slowing, growth in nominal term is actually accelerating, and that would be largely due to rising inflation.

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About Zarathustra

Zarathustra: Founder and Managing Editor of Also sprach Analyst. Once an analyst, now an investor and entrepreneur. Based in Hong Kong, but Londoner at heart.