No real surprise here for FMMF readers - I've always said we have to take everything from China with many grain of salts. In fact the two largest world economies seem intent on focusing on governmental propaganda rather than actual data. [Apr 23, 2008: Barry Ritholtz on Disappearing Economic Indicators]. [May 10, 2008: Finally Some Mainstream Reports are Figuring Out the Spin from Government] [May 22, 2008: Bill Gross - Inflation Underplayed by Government] The U.S. does it through adjustments over the years - when the data no longer says what the government wants, we create changes that make things sunnier side up. Magic! As for China? Who knows - we are led to believe a country consistently grows 10% (give or take 1-2%) non stop for years upon years, with little to no inflation. Like in a fairy tale. Mmmm... Kool Aid.
Without going into the sinister part of it, just think how realistic it is for ANY government of $4-$5 or $14T to accurately measure itself weeks after a quarter end. Anyone who has worked in a large corporate finance or accounting department knows the headaches and horrors it entails to measure ONE company in that time frame - not to mention millions of disparate companies, and consumers; accounting for imports, and exports, and inflation effects. It's a thumb in the air guestimate at best for even those with good intentions and sophisticated time measured statistical methods, in a relatively stable economy. And you think China, with an economy growing and evolving in a decade or two from mostly agrarian to a large industrial base is accurately measuring anything? How does India have such variance quarter to quarter and year to year, when China somehow rarely sees any major dips or surges - always in that 8-12% range. I know, I know - a miracle economy. (I am not saying India is measuring it any more accurately but at least they seem to be trying - there are huge swings year to year).
Rather than anything out of government it is far better to look at large scale industrial inputs (natural gas usage in the U.S., electricity consumption in China, transportation figures, etc), or what corporations themselves are saying. Which makes the whole knee jerk stock market reaction to every data point out of (either) government - which of course is gospel - by the Wall Street crowd maddening. But that's the game we have... don't hate the playa, hate the game.
It is much easier to dispute inflation figures in China (and domestically) rather than GDP, because you can go walk around and talk to people and see what is happening. (wow the package of ABC foodstuffs dropped in size by 22%, but the price is the same - no inflation here! <---Bernanke) [Sep 13, 2010: What's China's Real Inflation Rate? (What's China's Real Anything?)] Heck, even the Chinese admit they are fudging on this one. [Nov 12, 2010: Even China Accuses China of Fibbing about Inflation]
Now let's be clear - this is not saying China is not growing... obviously it is. Massive secular global changes are happening. But have some quarters been 5% GDP growth? Others 8%? Others 11%? Others 3%? Unless the economic cycle does not work behind the Great Wall, I'd assume so. And considering per this Wikileaks document that one of China's provinces has man made provincial GDP figures, you can extrapolate from there on what is happening in other parts of the country. It is not the first time we've highlighted the provinces - if you want to do well in politics you have pressure to 'make (up) the numbers' to please central command. [Aug 5, 2009: China's Provincial Growth Figures Far Overstated versus National Figures] And this sort of thing is just another reason to laugh as the S&P 500 surges X.X% premarket on so and so day due to official Chinese data released overnight.
- Liaoning Party Secretary Li Keqiang, a front runner for elevation to the Politburo this fall and potential successor to President Hu Jintao in 2012, described the challenges he faces as a provincial leader to the Ambassador over dinner on March 12.
- GDP figures are “man-made” and therefore unreliable, Li said.
(Ironically, Mr. Keqiang uses some of the same things mentioned above to create his 'man made'
guesses - electricity usage, rail cargo, and bank loans)
- All other figures, especially GDP statistics, are “for reference only,” he said smiling.
If you don't care about this gentlemen or what he pulls out of the air (smiling of course)... well ...
- Li Keqiang remains one of the front runners to ascend to the Politburo this fall, perhaps even to the Politburo Standing Committee, and to succeed Hu Jintao in 2012.