The release of China’s second-quarter growth data this week embodied a dilemma for the country’s policymakers: real economic expansion was strong and steady at 5.2 per cent but widespread falling prices meant nominal growth was much weaker, at 3.9 per cent.
Solid real growth reflects the expansion of Chinese industry and exports — but nominal growth is what Chinese workers feel in their wage packets and Chinese companies see on their revenue line.
It also means that interest rates, when deflation is taken into account, are much higher, leading to an ongoing, contentious debate about whether China should follow the path of western nations and adopt a zero interest rate.
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