China’s Unreliable GDP Data

 

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By John Richardson

THE economic slowdown throughout Asia became more apparent last week with the release of disappointing data, prompting interest rate cuts in China, Vietnam and South Korea.

China’s key polyethylene (PE) market responded as trading volumes fell and sentiment weakened for the week ending 13 July, according to ICIS.

Market participants, however, expressed hope that in the case of China, the economy had bottomed out following the release of first half GDP growth of 7.6 percent.

But:

*Can anyone trust that 7.6 percent was the real number, given that Chinese officials are encouraged to under-report growth during boom times and over-report GDP when the economy is struggling? “Out of the black box comes a number, and that number doesn’t always line up with the other numbers,” Andrew Batson, Beijing-based research director at macroeconomics consultant GK Dragonomics, told Bloomberg. “I wouldn’t be surprised if the GDP numbers this year are smoothed,” he added. 

*Electricity consumption is seen as a much more reliable measure of real economic activity. The chart above shows that it rose by only 7 percent in H1 this year over 9 percent during the same period in 2011. 2010 growth was 21 percent, at the height of the economic stimulus package.

*Bank lending jumped by 16 percent in H1 as the government attempted to re-stimulate the economy, as the above chart again shows. But, as we have discussed over the last week, this could add to China’s bad debt and deflation problems. And it seems likely that most of the lending has been taken up by the big corporations. The small and medium-sized enterprises, which make up the bulk of China’s chemicals and polymers buyers, seem hardly in a mood to lend. This is the result of rising labour costs, less labour supply, weak exports and now the pressure from deflation.

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