David Fickling is a Bloomberg Gadfly columnist covering commodities, as well as industrial and consumer companies. He has been a reporter for Bloomberg News, Dow Jones, the Wall Street Journal, the Financial Times and the Guardian.

When it comes to the direction of China's economy, who can you trust?

That Sinking Feeling
The Shanghai Composite Index is approaching its burst-bubble lows
Source: Bloomberg data

Official economic numbers are famously rubbery. China's exports to Hong Kong in December rose 30 percent from the previous month and overtook shipments to the U.S. and the European Union, according to customs data Wednesday which economists put down to fake invoicing by mainland businesses trying to evade currency restrictions. While party secretary of Liaoning province, current Premier Li Keqiang considered official GDP measures to be so unreliable that he instead measured growth by looking at electricity consumption, rail cargo, and bank lending, according to a U.S. diplomatic cable obtained by Wikileaks.

OK then, how about looking at company accounts? There have been problems there, too. Sino-Forest shares were suspended from trading in 2011 after short-seller Muddy Waters accused the company of claiming to own forests and sell timber that didn't exist. Software business Longtop Financial went public in the U.S. and filed prompt accounts every year until 2011, when Deloitte started turning up missing transaction records and off-books loans and ended up having some of its documents stolen during a confrontation with its own audit client. Chinese companies from Hanergy to Tianhe Chemical to NQ Mobile have faced questions over their accounting in recent years.

It may be tempting in the circumstances to believe that China is turtles all the way down -- that there's no hard foundation for its economy and no numbers can be trusted. Tempting, but mistaken.

For a sanity check, have a look at what blue-chip overseas companies are saying. Sales in China from KFC outlets open at least 12 months gained 5 percent in December, although they fell 11 percent at Pizza Hut, the chains' owner Yum! Brands said Tuesday. That's from a company that's had its share of problems in the middle kingdom. Starbucks plans to open 500 new stores in the country in the year through September, and Nissan Chief Executive Officer Carlos Ghosn also sees ``healthy growth" this year. UBS will double its staff in the nation over the next five years. 

China provided some 24 percent of Apple's revenue in the most recent quarter and will eventually become its biggest market, Chief Executive Officer Tim Cook told investors in October. Fresh from a visit to the country, he said Apple's stores there were among its busiest globally. Drugmaker AstraZeneca counted China as its fastest-growing market globally in the first nine months of last year with an 11 percent revenue share in the most recent period. H&M is opening its 300th store there and Uniqlo owner Fast Retailing plans to open 100 outlets every year.

A Rising Burden
China's public and private debt now makes up more than twice its GDP
Source: Bloomberg Intelligence

It's possible that some of these companies are mistaken. Like the Chinese government and domestic companies, foreign businesses may have middle-ranking officials on the ground with an incentive to massage the numbers and paint a brighter picture than is warranted. China's total public and private debt, in particular, is now equivalent to more than two years' worth of gross domestic product, raising the question of how much of current growth is being driven by incomes and how much by credit.

Of course, if companies and governments were able to give perfect forecasts of where economies are headed, there'd be no sudden reversals of investment flows and no recessions. As Bloomberg Intelligence's Tom Orlik pointed out Tuesday, China's economic data is actually broadly consistent, and foreign-exchange reserves remain ample to cover any capital flows as the yuan depreciates.

It's one thing to believe that China's government sometimes fudges its data or that Chinese companies occasionally commit fraud -- the same things happen in many other countries, including rich Western ones. But to assume that all foreign investors in the country are in on the scam and failing to ring any warning bells verges on conspiracy theory. Aspects of China's economy may be murky, but it's not turtles all the way down.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

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David Fickling in Sydney at

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