China Might Have Overstated Growth in Standard Chartered View
A slowdown in electricity production and an “unimpressive” reading in a manufacturing survey are reasons September’s pickup in factory output was “a bit difficult to believe,” Standard Chartered said in an Oct. 18 note. Capital Economics said its own analysis indicates the economy expanded about 6.5 percent in the third quarter, below the 7.4 percent year-over-year growth reported by the government this week.
Skepticism about China’s data is resurfacing as the ruling Communist Party prepares for a once-a-decade leadership transition with a congress set to start Nov. 8 in Beijing. An improving economy after a seven-quarter slowdown may bolster the image of top leaders and reduce the need for additional stimulus.
“The growth rebound is too good to be true,” said Li Wei, an economist at Standard Chartered in Shanghai. “Maybe the political agenda has played a role. If you are going to hold a board meeting of course you want to report a decent number. It’s understandable.”
The party congress next month and the meeting of the national legislature in March “should limit the risk of a double dip in China,” he said.
Evidence supporting the official data included rising production and prices of both steel and cement on the back of increased project approvals, said Wang Tao, an economist at UBS AG in Hong Kong. Industrial output may have been helped by a rebound in export growth last month, part of so-called light industries that are not power-intensive, she said.
Li Keqiang, who may succeed Wen Jiabao as premier in March, was quoted in 2007 as saying he watched data on power, rail cargo and loans because gross domestic product numbers were “man-made.” Li’s remark was published in a leaked diplomatic cable published by WikiLeaks in late 2010.
Electricity output slowed to a 1.5 percent year-over-year growth rate in September from 2.7 percent in August, according to the National Bureau of Statistics. Power production was down 11 percent from August.
GDP expanded 2.2 percent in the third quarter from the previous three months, the statistics bureau said in Beijing Oct. 18. On an annualized basis, that indicates growth accelerated to 9.1 percent in the last three months from 7.4 percent in the second quarter, Standard Chartered’s Li said. He estimates the annualized pace was 7.7 percent, up from 7.1 percent.
The statistics bureau’s news office didn’t respond to faxed questions about the economists’ skepticism from Bloomberg News.
“The speed of the turnaround implied by the official figures is implausible,” Mark Williams and Qinwei Wang, economists with Capital Economics in London, wrote in a note Oct. 18. They said their analysis of data including freight, electricity output and construction “suggests that conditions on the ground are weaker.” Williams was previously Asia economist for the U.K. Treasury and Wang formerly worked at the People’s Bank of China.
Standard Chartered also questioned the acceleration of industrial production in September to a 9.2 percent pace from a year earlier from 8.9 percent in August, a three-year low. A production sub-index of September’s official purchasing managers index “was flat compared to the average reading of the previous two months,” Li said.
“It is hard for me to imagine that manufacturers are undertaking huge investments and construction activities remain buoyant, showing a growth rate that seems totally unaffected by the stalling of property prices,” said Stephen Jen, managing partner at hedge fund SLJ Macro Partners LLP in London and former head of currency research at Morgan Stanley.
Jen said he’s skeptical of figures showing investment and residential construction expanding at a 20 percent pace.
Shane Oliver, Sydney-based head of investment strategy at AMP Capital Investors Ltd., said he’s not convinced by the doubters. “I don’t buy the story Chinese data is systematically overstated any more than I bought the story a few years ago that it was systematically understated,” said Oliver, who helps oversee A$123.2 billion ($128 billion). China’s electricity consumption is “not surprising” and “will always be more volatile both up and down,” Oliver said.
Jim Walker, chief economist at researcher Asianomics Ltd. in Hong Kong, sided with the skeptics, saying in a research note that the official data report was in “La-La Land.”
“We all know that Chinese GDP data are what the State Council or Politburo wants them to be,” said Walker, former chief economist at CLSA Asia-Pacific Markets.
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