Can we trust China’s announced growth?
NOTO SOPHISTICATED ANALYSIS is needed to show that China is in better economic shape than most other countries these days. Just look at its bustling malls, congested roads at rush hour, and crowded tourist spots during the holidays. But if the crowd scenes are enough to say that China is doing well, a little more work is needed to answer the question: exactly how well? As is often the case with Chinese data, the answer is controversial.
The national statistics office will publish a report in the third quarter GDP October 19. Analysts expect growth of around 5% from a year earlier, a strong recovery from the depths of the coronavirus downturn, and all the more stunning as much of the world is mired in recession. Still, some believe official growth data has been too rosy this year, not least because China’s pandemic lockdown in the first quarter was among the most restrictive in the world.
Fortunately, the mysteries are not unfathomable. Research published in recent weeks sheds some light on what is really going on. Doubts about China’s data are nothing new: it’s probably fair to say that few serious economists trust its accurate growth numbers. Instead, there are two big camps. It is believed that the official data is too smooth, but the general picture is not that misleading, because the government sometimes exaggerates GDP and at other times the lowballs. The second camp sees one-sided manipulation, with Chinese boffins constantly inflating the size of the economy. The new research comes from both camps.
Start with the more skeptical of the two, as best shown in a September note from Capital Economics, a consultancy. Julian Evans-Pritchard and Mark Williams, its analysts, argued that Chinese data had looked particularly dodgy since 2012. Prior to that, growth had consistently and well exceeded targets. Since then reported GDP was fully in line with the objectives set at the beginning of the year. And statisticians stopped making big revisions to their original estimates. Everything seems a little too perfect.
Other data seems more credible. While real (ie inflation adjusted) growth has been incredibly steady, nominal growth has been volatile. In addition, some elements of the real growth calculations appear to have been lifted. For years, the construction component of GDP moved along with cement production. But from 2014 to 2018, a big gap opened up as construction progressed. In the first quarter of this year, when China was in partial containment, the transport component of GDP resisted, despite a slump in freight and passenger traffic.
Capital Economics has therefore developed a “proxy of Chinese activity” to measure growth. There is a long tradition of analysts using alternative sources to measure the Chinese economy. No less an authority than Li Keqiang, now prime minister, did when he ruled a northeastern province. In their last proxy, MM. Evans-Pritchard and Williams include eight indicators, from real estate sales to ocean freight. The results are striking. Whereas GDP increased by 48% in cumulative terms from 2014 to 2019, they put the true expansion at 33%.
Chinese boffins may turn to an unlikely corner for partial defense: the US Federal Reserve. John Fernald, Eric Hsu and Mark Spiegel, economists at the San Francisco branch of the Fed, have also constructed a proxy for Chinese growth, presented in a forthcoming article, using indicators such as consumer expectations and investments. in fixed assets. They also conclude that the official growth has been implausibly steady since 2013. But they find that the real growth was faster about half the time and slower the other half (see chart).
The crucial test for these proxies is whether they offer information about China’s trajectory that is missing from official statistics. GDP The data. Both pass the test. The ups and downs of their measures better explain the periodic shifts in China’s fiscal and monetary policy than the oddly smooth trajectory of the official real. GDP Is. Fed economists put their proxy to another test, constructing it to be consistent with Chinese imports, as measured by reported exports from trading partners – in other words, a data source entirely free from manipulation. potential Chinese. In countries with reliable statistics, the growth of imports generally follows that of GDP. This is the case for their representative, but not for the GDP.
Does that mean the Chinese data is, to put it bluntly, garbage? No. Fed economists find that Chinese statistics, with the notable exception of the real GDP, have become more reliable over time. Capital Economics analysts conclude that the main problem lies in transforming nominal figures into real figures; statisticians seem to be using excessively low inflation rates to calculate real growth so the government can achieve its goals. Nominal measures are more reliable, and that matters when trying to gauge, say, China’s debt burden or the size of its economy relative to America’s.
Proxies, alas, offer slightly different accounts of China’s economy this year. Capital believes the slowdown in the first quarter was much more pronounced than expected, while Fed calculations suggest it was more moderate. The two, however, agree on the most salient point: the rebound since then has been significant. The crowded streets and bustling shops don’t lie. ■