{"id":583271,"date":"2026-05-14T09:13:20","date_gmt":"2026-05-14T09:13:20","guid":{"rendered":"https:\/\/www.newsbeep.com\/uk\/583271\/"},"modified":"2026-05-14T09:13:20","modified_gmt":"2026-05-14T09:13:20","slug":"dont-use-gdp-to-judge-chinas-strength-look-at-this-instead","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/uk\/583271\/","title":{"rendered":"Don\u2019t use GDP to judge China\u2019s strength \u2013 look at this instead"},"content":{"rendered":"

When President Donald Trump arrives in Beijing on May 14 for his summit with Xi Jinping, China will be ready with a figure \u2013\u00a05<\/a>%. <\/p>\n

That is China\u2019s official GDP growth rate and growth target for 2025, and it will be presented as evidence of economic resilience. The target is real. Whether that figure measures economic resilience is a different question.<\/p>\n

There is a better metric to watch. It is called the\u00a0Incremental Capital Output Ratio<\/a>, or ICOR, and it measures how much additional investment is required to produce one additional unit of economic output. <\/p>\n

When an economy is healthy, the ratio stays low. When capital is wasted \u2014 when investment flows into projects that don\u2019t pay off, when supply chases demand that doesn\u2019t exist, when the excess is dumped on other countries to mitigate losses \u2014 the ratio rises. China\u2019s ICOR is rising quickly.<\/p>\n

ICOR, which I calculated here as investment \u2014 formally, gross capital formation \u2014 as a percentage of GDP divided by the real GDP growth rate, is not an officially reported figure but is derived from China\u2019s National Bureau of Statistics data. <\/p>\n

Through the high-growth years of 2000\u20132007, that figure held steady at around 3.9 \u2013 meaning that to generate 1 percentage point of GDP growth, the economy had to invest the equivalent of 3.9% of GDP.\u00a0 <\/p>\n

For context, South Korea and Taiwan ran ICORs of 3.2 and 2.7\u00a0, respectively\u00a0, during their own high-growth decades \u2014 suggesting China was already a somewhat less efficient converter of investment into growth even at its best. <\/p>\n

Increasingly unproductive<\/p>\n

Then came China\u2019s 2008 stimulus. Between 2008 and 2019, China\u2019s ICOR climbed from approximately 4.5 to 7.2 \u2014 almost double the pre-crisis baseline. The easy growth wins \u2014 coastal manufacturing, infrastructure connecting underdeveloped regions, a population moving from farms to factories \u2014 were largely spent.<\/p>\n

Since 2020, China\u2019s ICOR has continued to increase. Using official GDP figures, China\u2019s ICOR now stands at approximately 8.5 on an annual basis, approaching 9 on a five-year rolling average. <\/p>\n

But using more realistic GDP growth figures from the\u00a0Rhodium Group<\/a>, a US-based independent research provider, which\u00a0estimates<\/a>\u00a0China\u2019s 2025 growth in the 2.5\u20133% range, the implied ICOR is between 14 and 17. <\/p>\n

The point is that even the most generous reading of Chinese economic data shows an economy that is rapidly becoming less productive with more subsidized credit.<\/p>\n

Beijing\u00a0hits<\/a>\u00a0its official GDP growth targets with remarkable consistency and accuracy \u2013 even to the point where high-level Chinese officials have\u00a0downplayed<\/a>\u00a0the legitimacy of the data. It does this, in part, by treating GDP less as an output than as a target \u2014 set in advance, then achieved through credit allocation. <\/p>\n

State-owned enterprises, local government financing vehicles, and politically connected developers borrow at rates that don\u2019t reflect risk and invest in projects that would fail a commercial return test.\u00a0 <\/p>\n

The result is that more and more investment goes into producing things that Chinese consumers don\u2019t want to meet GDP growth targets. Unable to sell that surplus at home, Beijing exports it \u2014 selling below cost into global markets and effectively transferring the losses from its own misallocated investment onto trading partners abroad.\u00a0<\/p>\n

Implications for Trump-Xi summit<\/p>\n

The standard framing treats the US-China trade relationship as one between a dynamic and resilient China and a US in slow\u00a0decline<\/a>. The ICOR data, however, complicates that picture considerably. <\/p>\n

The US has maintained a relatively stable ICOR over the past two decades \u2014 reflecting an economy where investment and growth move in rough proportion. For China, an economy requiring more and more investment for every yuan of additional GDP is not in a position of relative strength. <\/p>\n

It is structurally dependent on continued credit expansion and export revenues to service that credit and maintain political legitimacy. Tariffs and other\u00a0US economic statecraft tools<\/a>\u00a0can apply pressure directly to the mechanisms Beijing uses to manage domestic stability, especially the export revenues that service an expanding debt load.\u00a0\u00a0<\/p>\n

The most effective response to a structurally weakening China, however, is not for the US to wall itself off from global trade unilaterally. Rather, it is to work with allies to systematically address the dumping that Beijing\u2019s overcapacity model produces. <\/p>\n

The rest of the world is absorbing the same\u00a0flood<\/a>\u00a0of underpriced Chinese exports. A coordinated multilateral framework \u2014 one that targets the subsidized overproduction at its source rather than simply redirecting it \u2014 would apply far more durable pressure than unilateral tariffs, which risk isolating the US from the very partners whose leverage it needs.<\/p>\n

None of this means that China is about to collapse. Its system has shown remarkable capacity for managed deterioration by hiding losses, extending timelines and rolling forward problems. <\/p>\n

But managed deterioration is different from strength, and China shows no desire to address its underlying imbalances on its own.\u00a0Beijing will continue to celebrate its 5%. But the number to watch is the one they won\u2019t mention \u2014 the rising cost of producing that growth.<\/p>\n

Daniel Swift is a senior research analyst for economics, finance and trade for the Center on Economic and Financial Power at the\u00a0Foundation for Defense of Democracies<\/a>.\u00a0He is a retired US diplomat.\u00a0<\/p>\n

\t