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China Economic Growth Claims Lack Credibility

On April 16th the China National Bureau of Sta­tis­tics (the “NBS”) announced with great fan­fare that the Chi­nese econ­omy was spe­cial because even in the face of an emerg­ing global depres­sion China was able to con­tinue to grow at a rapid pace in the first quar­ter of 2008. Accord­ing to Chi­nese offi­cials, the head­line Chi­nese first quar­ter 2009 growth rate was 6.1% which is an eco­nomic mir­a­cle given an esti­mated 25% fall off in exports, a drop in most indus­trial pro­duc­tion num­bers (includ­ing elec­tric pro­duc­tion) and what appears to be a col­lapse of the real estate sec­tor (as evi­denced by real estate defla­tion and high urban com­mer­cial real estate vacancy rates).

I was not sur­prised by Chi­nese offi­cials say­ing things are OK in China. What sur­prises me, how­ever, is the lack of crit­i­cal analy­sis of the Chi­nese GDP num­bers by West­ern econ­o­mists and media. In the last two weeks most econ­o­mists have accepted the first quar­ter 6.1% growth num­ber as gospel and cite it as a rea­son that the global econ­omy may recover. Instead of being an eco­nomic prob­lem, there is a grow­ing con­sen­sus that China will be the eco­nomic engine that pulls the global econ­omy out of its ditch. Gold­man Sachs even raised their fore­cast for 2009 Chi­nese GDP growth from approx­i­mately 6% to 8.3% and seems to have applied for full mem­ber­ship Chi­nese Com­mu­nist Party (“CCP”) mem­ber­ship by recit­ing the “party line” about how and why China is dif­fer­ent from every­one else. The prob­lem is that Chi­nese GDP num­bers don’t match the hype and when crit­i­cally ana­lyzed or com­pared to pre­vi­ous NBS sta­tis­tics show some seri­ous prob­lems and inconsistencies.

Set forth below are some NBS sta­tis­tics. It isn’t easy to get the data because the Eng­lish NBS web site doesn’t include his­tor­i­cal num­bers that would allow a west­ern researcher to eas­ily rec­on­cile their cur­rent growth claims.

9 month GDP for the period from Jan­u­ary to Sep­tem­ber, 2008        20.16 tril­lion Yuan

Full year 2008 GDP                            30.10 tril­lion Yuan

First quar­ter 2009 GDP                             6.57 tril­lion Yuan

Based upon the above sta­tis­tics, fourth quar­ter 2008 GDP was 9.91 tril­lion Yuan (cal­cu­lated by sub­tract­ing 9 month GDP from full year GDP). But, first quar­ter GDP was 6.57 tril­lion Yuan which is a lot lower than the fourth quar­ter of 2008. It seems, based upon NBS num­bers, that growth didn’t occur in 2009 even though they claim it did. The num­bers obvi­ously don’t rec­on­cile, which is the point of my concern.

Chi­nese lead­ers are try­ing to avoid report­ing that Chi­nese GDP is falling just like GDP in the rest of the world. They seem to be obfus­cat­ing this unfor­tu­nate fact with a bar­rage of incon­sis­tently cal­cu­lated and reported num­bers. The indus­trial pro­duc­tion num­bers, export num­bers, agri­cul­tural num­bers and real estate data don’t add up to a grow­ing econ­omy. I esti­mate that domes­tic con­sump­tion would have had to grow by around 20% to pro­duce 6.1% first quar­ter growth (not year on year growth but actual growth dur­ing the first quar­ter). And, given ris­ing unem­ploy­ment caused by the Chi­nese export crash it isn’t likely that Chi­nese con­sumers are increas­ing spend­ing like a bunch of drunken Americans.

West­ern press accounts are dis­tort­ing the Chi­nese eco­nomic sta­tis­tics. For exam­ple, in an arti­cle dis­cussing how the newest Chi­nese GDP data was pro­vid­ing encour­age­ment to econ­o­mists, the Wall Street Jour­nal reported that “growth in gross domes­tic prod­uct came in at just 6.1% in the first quar­ter; at best a wrong state­ment. On April 16th the Wall Street Jour­nal cor­rected its pre­vi­ous report­ing error when it wrote” Break­ing down the GDP fig­ures rel­a­tive to the pre­vi­ous quarter…[is] how most devel­oped economies report their eco­nomic data…China’s 6.1% fig­ure for the first quar­ter of 2009, because it is a com­par­i­son only with the year-earlier period, doesn’t clearly show how the econ­omy is doing rel­a­tive to the onset of the cri­sis late last year.

The New York Times did a bet­ter job report­ing Chi­nese GDP and Floyd Nor­ris actu­ally com­pared Chi­nese eco­nomic growth claims against Chi­nese elec­tric pro­duc­tion (a com­par­i­son I agree with) and ques­tioned whether or not China’s GDP claims are true. Mr. Nor­ris pointed out that elec­tri­cal use in China was down for the first two months of 2009 by 9.2% which is incon­sis­tent with any level of GDP growth. As an aside, accord­ing to Chi­nese gov­ern­ment sources sub­se­quently stated elec­tri­cal use rebounded in March but remained down 4% for the quar­ter which is a quar­terly num­ber that seems too good to be true after the first two months being down 9.2%.

While the New York Times more or less got the story right on Chi­nese GDP growth, most other media insti­tu­tions, like the LA Times, mis­re­ported the data. And, no major media source has run a front page “above the fold” story on whether or not Chi­nese gov­ern­ment data is mis­lead­ing. Every­one is just more or less accept­ing what the CCP is dish­ing out.

I am pretty sure that by the end of 2009 Chi­nese offi­cial sta­tis­tics will end up “prov­ing” that the Chi­nese spirit is stronger than the rest of the world and that the econ­omy grew at a rate close to 8%. After all, the Chi­nese lead­ers all but guar­an­teed con­tin­ued eco­nomic growth at around 8% and they will deliver that num­ber, no mat­ter what it takes. But, West­ern econ­o­mists and media ana­lysts need to be a lit­tle more care­ful about report­ing Chi­nese “facts”. Oth­er­wise West­ern pol­i­cy­mak­ers and busi­ness lead­ers will make tragic Chi­nese pol­icy errors based upon a bad under­stand­ing of the Chi­nese economy.

Posted in: Asia, China, Finance, GDP, Politics

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