Don’t use GDP to judge China’s strength – look at this instead

Support us China's factories don't use capital as efficiently as they used to. Image: YouTube Screengrab When President Donald Trump arrives in Beijing on May 14 for his summit with Xi Jinping, China will be ready with a figure – 5%. That is China’s 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. There is a better metric to watch. It is called the Incremental Capital Output Ratio, or ICOR, and it measures how much additional investment is required to produce one additional unit of economic output. When an economy is healthy, the ratio stays low. When capital is wasted — when investment flows into projects that don’t pay off, when supply chases demand that doesn’t exist, when the excess is dumped on other countries to mitigate losses — the ratio rises. China’s ICOR is rising quickly. ICOR, which I calculated here as investment — formally, gross capital formation — as a percentage of GDP divided by the real GDP growth rate, is not an officially reported figure but is derived from China’s National Bureau of Statistics data.

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