China GDP reports remain “man-made and therefore unreliable”

China elec Jun14bThe blog got 54.8m results from Google when it entered the phrase “China GDP” this week.  The only problem, seemingly unrecognised by most analysts, is that China’s GDP report is a completely fictitious number, invented by the leadership each quarter to suit its own narrative.

This sounds a bold statement, but it isn’t:

  • China is the only country to declare its GDP figure only 2 weeks past the end of the quarter
  • It is the only country that never revises its GDP figure
  • It is also the only country where all the provinces routinely report GDP numbers higher than the national figure

The blog noted back in December 2010 that Li Keqiang, now China’s premier, had described the figures as “man-made and therefore unreliable”.  Now the blog is delighted to see a new book, ‘Myth-busting China’s Numbers’, by Matthew Crabbe, highlights just how fictitious they are.  As the Financial Times review notes:

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.

“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.”

As Li and Crabbe note, one has to look at data for electricity consumption, bank lending or rail freight volumes to understand the real state of China’s economy.  At the moment, given the problems with the shadow banking system, the blog is preferring to focus on electricity consumption as its key metric, as shown in the chart above:

  • Electricity consumption is core to any economy, and reflects real-time demand as it cannot be stored
  • 2009 data highlights the massive stimulus impact, with consumption up 22% in January-May versus 2008
  • More recently, 2012 was up 6% versus 2011; 2013 was then up 5% versus 2012
  • So far, 2014 is also up 5% overall, but April/May show a slowing trend versus Q1

This picture of a slowing economy is also confirmed by latest data for China’s oil consumption.  Reuters report this was down 0.7% in May versus May 2013.  They also note that China is now exporting fuel on a semi-regular basis, also suggesting a slow economy.

“Self-proclaimed China hands” may like to focus on GDP numbers, as it gives them the illusion of knowledge.  The rest of us will be much more cautious.

No matter what the official numbers may say, China’s actual GDP growth may well head towards zero in the near future, as the new leadership continues to clean up the mess it was left.

About Paul Hodges

Paul Hodges is Chairman of International eChem, trusted commercial advisers to the global chemical industry. The aim of this blog is to share ideas about the influences that may shape the chemical industry over the next 12 – 18 months. It will try to look behind today’s headlines, to understand what may happen next in important issues such oil prices, economic growth and the environment. We may also have some fun, investigating a few of the more offbeat events that take place from time to time. Please do join me and share your thoughts. Between us, we will hopefully develop useful insights into the key factors that will drive the industry's future performance.

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