BOFIT Viikkokatsaus / BOFIT Weekly 2017/26

Preliminary 2016 demand component figures released this month by data provider CEIC show that China is making progress in structural reform of its economy. The change has been slow, however, as fixed investment still equalled nearly 43 % of GDP. In other words, the investment ratio fell by just a half percentage point from 2015. China's fiscal policy response to the Great Recession in 2009 was to launch a massive stimulus that quickly drove up the investment rate to 45 %. The purpose of the stimulus was to compensate for the huge drop in export demand, but its impact eight years later is still seen in China's excessive investment ratio.

Private consumption accounted for 39 % of total demand last year, a percentage point increase from 2015. Despite its growing share, private consumption still accounts for an exceptionally tiny fraction of GDP.

Caution should be used in interpreting China's GDP figures. Demand-side figures, despite earlier promises to start releasing quarterly data, are only reported on yearly basis indicating various problems in data collection.

Main demand components of Chinese GDP

Source: CEIC.