China: GDP And Forgetting What You Already Know

By John Richardson

Mickey_Mouse_CostumeTHE blog has a terrible confession to make: We sometimes get it very badly wrong. How’s that for modesty?

A couple of months ago we got it very badly wrong when we kept waffling on and on, in post after post, about whether China would hit GDP growth of 3-4%, 5%, 6% or above 7% in 2014.

We forgot what we already knew: That China’s numbers are largely “man-made and therefore unreliable,” according to comments made by Li Keqiang back in 2010.

We, however, can console ourselves in that we are not the only people to get suckered-in to a seemingly endless debate about what China’s growth will be in 2014.

In the latest round of this debate, the Wall Street Journal yesterday wrote:  “Chinese Finance Minister Lou Jiwei said that the government’s [2014] 7.5% economic growth target isn’t a ‘floor,’ suggesting that Beijing may be comfortable with slower growth.”

This ran counter to comments made over the last few weeks by that man again, Li Keqiang, in which he appeared to indicate that China would not be happy with growth of less than 7.5% . Economists have taken these statements as an indication that more economic stimulus is on the way.

Every cough and splutter of this debate does, of course, represent a trading opportunity for those who want to go either short or long in equity and commodity markets.

But beyond that, the discussion is pretty much valueless, as Matthew Crabbe points out  in his new book,  Myth-Busting China’s Numbers: Understanding and Using China’s Statistics.

In a review of the book, the Financial Times points out that the same applies to pretty much all government statistics.

“One of the first and most important points he makes is that in China’s Leninist system all information is political and can be designated a ‘state secret’ at any time if the ruling Communist party decides it does not help to bolster the party’s own legitimacy and power,” writes the FT.

“Crabbe also explains why data and statistics are so often manipulated by party cadres whose career advancement relies very heavily on them meeting various top-down targets issued by Beijing.  This book is timed very well – just as the crowd of self-proclaimed China hands based all around the world has begun to multiply exponentially.

“The extremely important point he makes repeatedly is that it is impossible to understand what is happening in China by just looking at the data published by the government.”

And so what data should we look at? Electricity consumption points out fellow blogger, Paul Hodges, in this post on the same subject.  Consumption is up by 5% so far this year compared with 22% during 2009 – at the height of China’s huge economic stimulus package.

What else matters?: Slowing investment in the property market and the unwinding of collateral trades attached to real estate, as we discussed earlier this week.

Here is something else that matters: The number of times you read negative phrases, such as “persistently weak downstream demand”, in ICIS pricing reports. We have yet to quantify this, but negative statements such as the one above, appear to have greatly increased in frequency in our reports since the start of this year.

That’s  it for this week. There will be no post tomorrow as the blog takes a short break  for a trip to Euro Disney. No  jokes about Mickey Mouse Chinese GDP data, please.