China's Growth and Productivity Puzzle Revisited : Has China Become Too Big to Fail?

The National Accounts Data regularly published by China raise questions about their validity for quite some time. The paper takes a dataset published as part of the Total Economic Database by the Conference Board as a possible benchmark to see how much these different estimates on the Chinese GDP and labor productivity differ from each other. We find a couple of significant differences which prevail up to the most recent years. So official statistics on the real GDP of China in 2015 claim that the economy grew by 6.9% while the Conference Board estimates just calculate a meager 3.8%. There is little evidence that this mismatch will end in the coming years. Since China has become a major player in the global economy this has major ramifications not only for China but for the global economy as well. The author of this paper cannot solve this puzzle, but find a couple of obvious inconsistencies in the official data. Using Verdoorns law as a possible benchmark to reveal major structural differences in this relation, we find little evidence that the differences between the two datasets matter much when it comes to econometric analysis. Since labor productivity growth is a key indicator for the future development of income per capita of a country we observe that China has currently little chance to escape the middle income trap for the foreseeable future. Even if city states like Hong Kong caught up to the US level China is too large to manage this development for the whole economy. Finally the paper concludes with some thoughts about future challenges ahead for the Chinese economy if the less optimistic assessment of Chinese economic development of the CB would materialize. The current presidential candidates in the US give some indication that the previous close economic relationship between China and the US will be at risk in the coming years