What everyone overlooked in China's GDP numbers

While all the focus on the latest GDP numbers has been on China’s slowing growth rate, in US dollar terms it’s a completely different story. For Australia, this matters a great deal.

We missed it.

China’s growth numbers for 2014 were released on Tuesday. But so far all the talk has been about the figures showing the economy expanding at its slowest pace in 24 years.

Yet here’s another way of looking at the same data -- we’ve just found out that US dollar terms, China’s economy grew by more than in any year previously. Let me repeat that -- in any year, ever. 

It has a different ring to it, doesn’t it?

Two things are happening here: the first is that China’s economy gets bigger each year. So even if growth slows in percentage terms, the volume of renminbi surging into action can continue to increase. The second is that since 2005, the renminbi has been appreciating against the US dollar. So each one of those renminbi can buy more US dollars than before.  

The combination delivers a thick wad of new Chinese purchasing power overseas.  

Take any starting point you like.

China began 2013 with an $US8.3 trillion economy. During the year it grew by 7.7 percent in local currency terms. At the same time, the renminbi appreciated by nearly 2 per cent. This meant that by the time 2014 rolled around, the economy had added $US643 billion.

Last year the pace of growth eased to 7.4 percent. But the economy started out bigger. That alone was enough to see more renminbi pressed into service than in the year before. On top of that the renminbi appreciated by another 1 per cent. The result was that China’s economy swelled by $US673bn in 2014.

For Australia and the rest of the world, this increasing trend in buying clout in US dollar terms matters a great deal.  

BHP Billiton and Rio Tinto have never sold a single kilogram of iron ore to China for a percentage sign.

Last year, Rio sold a shipment of iron ore to China denominated in renminbi for the first time. It was described as a “one off”.

The rest is in US dollars. According to its customs bureau, China paid $US55.7bn for the Australian iron ore it imported in the year to November.

In a similar vein, the Department of Education and Training says that the 112,536 Chinese students studying in Australia in 2013-2014 paid $4.1bn for the privilege.  

Nothing looks set to change.

The IMF just downgraded China’s growth prospects for 2015 from 7.1 per cent to 6.8 per cent. Yet after crunching the numbers it’s clear that for the increase in local currency purchasing power to match that of last year, China only needs to grow this year by 6.9 per cent. It’s right on target then.

What will happen on the currency front is harder to guess.  

But we do know that China just recorded a whopping $US383 billion trade surplus in 2014. That was up 47 per cent on 2013.

And the European Central Bank and the Bank of Japan continue to print money with all the enthusiasm of a Chinese banquet welcoming in the Year of the Goat.

This makes any depreciation of the renminbi look unlikely.

For Australia, there’s another big bonus from the new spending that China will unleash. It wants what we produce.  

Last year, Hillary Clinton warned that it would be a mistake for Australia to put all its eggs in the China basket. Communications Minister, Malcolm Turnbull, responded, “I’m sure that we’d love to export vast quantities of iron ore to the US but they’ve never shown any enthusiasm in buying them.

That’s it in a nutshell. Between 2008-9 and 2013-14, the value of Australia’s exports to China leapt by $63.3bn. The value to the US and Japan fell.

Keeping track of the boost China that is giving our economy isn’t hard. Just follow the dollar signs.

Professor James Laurenceson is deputy director of the Australia-China Relations Institute at the University of Technology, Sydney.