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.
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.