Friday, 23 January 2009

China statistics - to believe or not to believe?

I have stated on numerous occasions that I do not trust the statistics coming out of China and for good reason.

It appears other economists share my skepticism. So is China in recession or not? To get 2 quarters of NEGATIVE growth would be required. This would be pushing it but I suspect we are not far off.

Economists treat statistics from Beijing with caution [FT]

Beijing boasted bright blue skies yesterday, but for the nation's economists the outlook is not quite so clear.

When the Chinese economy was growing at more than 10 per cent a year, few people stopped to question the official numbers. The soaring tower blocks and acres of new factories made the story real. Yet now that analysts are scrambling to work out just how quickly the economy is slowing, the holes in the official statistics are looming larger.

China said yesterday the economy expanded 6.8 per cent in the fourth quarter of 2008 compared with the same period the year before, the lowest rate in seven years. However, the raft of figures out yesterday did little to clarify just how long the slowdown would last and left some economists complaining the official numbers were flawed.

"China is now the third largest economy in the world but we have no reliable data on consumption or housing," says Ben Simpfendorfer, RBS economist. "It is difficult to get an accurate view of two of the main growth drivers over the last decade."

The government, which has set a target of 8 per cent growth this year, admitted the economy had cooled rapidly but said there were already tentative signs the worst might be over.

Industrial production rose by 5.7 per cent in December, a modest improvement on November, and retail sales growth remained high at 19 per cent. The surge in new bank lending at the end of last year has been interpreted by some as a sign the government's fiscal and monetary stimulus plans are beginning to work.

Ma Jiantang, head of the National Bureau of Statistics, aimed for a poetic touch to describe the positive signs. It was not yet clear if they were sustainable, he said, but they could be "like sunshine in a cold winter, light at the break of a dark dawn and sparks that can turn into a roaring fire".

Yet there are plenty of indications of a more prolonged slowdown. Imports dropped sharply in November and December, including of machinery which suggests weak investment in manufacturing. And although there have been signs that housing transactions are increasing, the large volume of unsold new properties in many cities could hold back new investment this year.

"Developers will be very cautious about getting new construction going again," says Joan Wang, head of research at the Beijing office of Savills, the property services group.

Economists also caution against reading too much into some of the data. China releases gross domestic product figures on a year-on-year basis, but does not provide data from one quarter to another. After stripping out seasonal adjustments, some economists tentatively estimated the economy barely grew at all from the third to the fourth quarters and could even have declined.

The official figures for house prices are believed by some to understate both past increases and current decreases in prices. Moreover, the retail sales figures, which appear to indicate buoyant consumer demand, are treated with caution, because they include some government purchases and wholesale buying.

"Retail sales number should not be trusted," says Arthur Kroeber, editor of China Economic Quarterly. The headline numbers last year grew much faster than urban incomes, which he says is "implausible", especially given the apparent slowdown in consumer spending on items such as car.


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3 comments:

Bill said...

I believe all statistics from China as what they are : Chinese statistics.

Anonymous said...

You should know that there is such a controversy in every country, and especially in the United States.

See www.shadowstats.com

Dominic Meagher said...

I think you're being a bit harsh on China in this respect. Not to say that Chinese statistics are leading the world in reliability or transparency, but put things in perspective: China is a developing country. Statistics are a luxury good. With China's budget constraints resources devoted to statistics will not be sufficient to produce world class statistics. China also lacks the human capital to achieve that even if the money was there.

You highlighted the part of the FT report that mentions China is (as of this quarter) the third largest economy in the world, as if this somehow implies they should have excellent data. The size of China's economy is due simply to the fact that 20% of the people in the world live in China.

And all that said, Chinese statistics are still useful. The precise figures are generally not as important as the trends anyway, and there's no reason to suspect that trends are adjusted in a major way, except some suspicion that business cycles are smoothed a little (although having looked at Chinese macro data, I doubt this plays a big role).

You can "distrust" Chinese data all you want, but they are a tool that is produced and is out there. If you can't find a use for that tool that's fine. Other people can and when they do so responsibly can yield useful insight.

Of course other people miss-use such tools and then miss inform their readers. Readers need to beware of all statistics.