China's economic miracle?

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Opinion Zone,Iain Murray

One thing you should always remember about GDP is that it is a measure of economic activity first and foremost. Therefore, it is generally a sound indicator of economic health. However, its main weakness is that it includes all economic activity, even that which replaces existing assets destroyed by natural disaster. Hence the bizarre idea that the economy booms following a disaster like Hurricane Katrina or the Japanese Tsunami.

There is increasing evidence that much of China's astounding GDP growth originates from government-ordered destruction and replacement of assets, or the construction of unwanted (not necessarily unneeded) new assets. The swanky new high-rise apartments, for instance, cost more than most people can afford, and the terms (50% down, balance paid off in 36 months) makes today's tightened post-crisis mortgage credit look like subprime liar loans. This report from Australia's version of Dateline sums up what is happening very well: