When 7% Isn’t 7%
Concerns with China’s reported economic statistics are far from a new issue, but they have taken on added importance given both the lack of economic growth in other corners of the world and the inflating Chinese stock bubble. The underlying incentives — maintaining social stability under autocratic rule — suggest that there are plenty of reasons for party operatives to fudge the numbers upward.
When China released its tabulation of first-quarter growth earlier this month, the 7% figure — the worst in six years — stirred fears of a deepening slowdown. It also raised fresh doubt about the trustworthiness of China’s own statistics. “Growth Likely Overstated,” said a Citibank report, concluding that actual quarterly growth could be below 6% year to year, depending on the factors weighed. Other research firms put their numbers far lower, with Capital Economics pegging the quarter at 4.9%, the Conference Board’s China Center at 4% and Lombard Street Research at 3.8%.
Efforts to discern China’s actual growth rate have kept economists pinned to their calculators for years, and for good reason. For one, the figures are suspiciously smooth, with none of the sharp gyrations seen in the U.S. or other economies. The methodology often appears inconsistent or contradictory. Also, no one knows how China accounts for inflation when tabulating its gross domestic product.
Then there are the many ways China’s GDP figures appear to clash with other data points considered more difficult to manipulate. Economists point to the discrepancy between headline GDP growth and industrial production, often seen as a proxy for growth, which grew by 5.6% year to year in March — its lowest level since late 2008. This came amid weaker recent readings for electricity consumption, investment, industrial profits, manufacturing output and real-estate investment, among others.
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As China’s economy pivots away from heavy manufacturing, the bureau has struggled to better reflect the growth contribution from services and consumption over production, the traditional focus, economists say. And it has tried to rely less on data from local officials with an interest in inflating growth to secure promotions. “Local exaggeration is not the problem it once was, though I assume it is not eradicated,” said Nicholas Lardy, a senior fellow at the Peterson Institute for International Economics. The statistics agency hasn’t helped its case. It doesn’t explain its methodology or inflation assumptions, and many of its calculations are difficult to reproduce, economists contend.