China Economic Data Questioned as Electricity Use Slows

China Economic Data Questioned as Electricity Use Slows Down
The government is good at measuring some pieces of the economy including industrial production and profits, said Louis Kuijs, an economist at the Fung Global Institute, a research group in Hong Kong. Photographer: Nelson Ching/Bloomberg

The figures that go into China’s gross domestic product are “man-made” and “for reference only,” Li Keqiang, then a regional Communist Party head, said in 2007.

The comments by Li, now a vice premier who’s expected to become premier next spring, were revealed in a diplomatic cable published by WikiLeaks in late 2010. Li’s remarks are especially relevant as China announced today that the economy expanded 7.6 percent last quarter from a year earlier, the slowest pace in three years.

Investors, bankers and economists face a host of difficulties in interpreting the numbers from China’s statistics bureau, Bloomberg Businessweek reports in its July 16 issue. Combining all officially reported provincial GDP numbers for last year produces a total exceeding national GDP by about 10 percent, Ma Jiantang, head of the National Bureau of Statistics, said in February. Ma said that is due partly to double counting of items including factory production and that his bureau was trying to correct the issue.

China’s registered urban unemployment has moved between just under 4 percent and 4.3 percent for the last decade, while electricity consumption has slowed much faster than growth in official GDP when it normally should move more in tandem. That has stirred speculation GDP figures are being skewed upward in the run-up to a leadership transition this fall.

‘Smoothed’ Figures

“Out of the black box comes a number, and that number doesn’t always line up with the other numbers,” says Andrew Batson, Beijing-based research director at macroeconomics consultant GK Dragonomics. “I wouldn’t be surprised if the GDP numbers this year are smoothed.”

One legacy of the planned economy is that bureaucrats are given targets by the central government for everything from steel production to harvests and local GDP. These same officials traditionally have been promoted on their success in making their numbers.

“We have a saying in China: The cadres produce the data, and data produces the cadres,” said Jin Yongjin, a professor of statistics at Renmin University in Beijing.

The government is good at measuring some pieces of the economy including industrial production and profits, said Louis Kuijs, an economist at the Fung Global Institute, a research group in Hong Kong. Those numbers benefit from a nationwide system of corporate reporting instituted decades ago to help central planners steer the economy.

“In the old system it was crucial to have that reporting system in place,” Kuijs said. “China’s industrial survey is giving us quite good numbers.”

Service Economy

The country’s statistical system may be far less capable of measuring the service economy or getting an accurate reading of consumption by the middle class.

“If you look at the number of cars produced in China, you will probably get a more or less accurate number,” said Stephen Green, regional head of research for greater China at Standard Chartered Plc in Hong Kong. “But the system isn’t good at measuring how many karaoke nights people have had or restaurant meals they have had.”

Retail sales include purchases by government offices and big state enterprises, Green said. That may explain why retail sales haven’t fallen during downturns: State entities are ordered to keep buying even when individual consumption has probably declined.

Equipment Sales

Investment banks have searched for the indicator that will predict an economic turning point. Standard Chartered looked at sales of earth-moving equipment before deciding it was a lagging rather than a leading indicator. Bank loans, as well as electricity consumption and rail cargo volume, all cited by Li Keqiang as more reliable than GDP, are still a good proxy for the economy, Green said.

Today’s National Bureau of Statistics report showed China’s growth slowed for a sixth consecutive quarter as trade and manufacturing decelerated. Last quarter’s 7.6 percent growth rate compared with an 8.1 percent expansion in the previous period and the 7.7 percent forecast by economists.

Electricity generation was unchanged in June from a year earlier at 393.4 billion kilowatt-hours, according to today’s data. That’s the first time since May 2009 that production hasn’t increased, excluding a contraction in January this year as factories shut for the weeklong holiday.

Data Collection

One new effort to gauge the economy is the China Beige Book, a quarterly survey of about 2,000 bankers and company executives, modeled on the U.S. Federal Reserve’s Beige Book. It measures growth in eight key industries across China’s major regions, said Leland Miller, president of New York-based CBB International LLC, which publishes the report.

Chinese policy makers are trying to address the government’s statistical shortcomings. More data are now directly reported to Beijing, as opposed to being first filtered through local party offices. The statistics bureau has moved to standardize data collection by China’s many ministries and industrial associations.

The bureau has also worked with the United Nations, the International Monetary Fund and the Organization for Economic Cooperation and Development to improve its tracking of the economy.

China still tends to treat its data gathering as a national secret, said Anne Stevenson-Yang, co-founder of Beijing-based J Capital Research, which analyzes equities. She cited the government’s refusal to release the weighting of goods tracked to compile its consumer price inflation index.

“Why would you ever lift the hood and show people how you do it?” Stevenson-Yang said. “That only reduces your ability to change numbers if you need to.”

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