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18 Feb 2013
Forex Flash: What was real Chinese GDP growth in 2012?
Stephen Green of Standard Chartered Global research questions whether China´s official GDP announcements are reliable or actual GDP growth is closer to 5.5%.
Green begins by commenting that if there was an index for suspicion about China´s official statistics, it would be off the chart. While the global financial crisis added plenty of statistical smog, the issue with Chinese data is not new but scepticism has to be reasonable deployed as some numbers are better than others and the problems vary across different data sets.
He notes that headline statistics are particularly important. He writes, “The government has very clear annual GDP targets, and these numbers hit newspaper headlines. We believe the GDP numbers, especially the first prints, are possibly subject to smoothing at times of super-fast or unusually slow growth. We have previously explored various proxies to track the industrial and investment cycle (electricity, freight, diesel, and concrete production, for instance).”
Green notes that consumption is trickier to monitor, though he does like “KFC same-store, car and Hong Kong retail sales, to name a few proxies.” Across the board, he notes that the proxies told the same story from Q3-2011 onwards: an economy slowing significantly through to Q3-2012, before those shoots did their green thing in Q4. The official y/y GDP numbers, however, attempt to tell a different story: pretty stable growth. The official q/q numbers suggest that Q3 was actually the strongest quarter in 2012.
Questioning why this is the case, he notes that one e hypothesis is that there is a problem with the GDP deflator, i.e., the number that is used to measure overall inflation and that gets us from nominal to real growth. He cites two studies which conclude that service-sector inflation is underestimated within the GDP deflator. Considering Chinese inflation, he feels that it is not too bad, despite still having some obvious issues however.
Overall, he notes that growth boomed in 1992 with Deng Xiaoping‟s revival of reform, but then slowed sharply with Zhu Rongji‟s retrenchment policies of the mid-1990s. The economy was further weakened by domestic restructuring and the Asian Financial Crisis in 1997-98. Then, with the state-enterprise reforms of the mid-1990s feeding through, China‟s entry into the WTO in 2001, and strong global growth, China‟s economy took off again in 2001, peaking out in 2007.
From that point Green notes that growth has slowed considerably since the height of the stimulus. he writes, “Our guesstimates for the past two years look considerably weaker than the official estimates: our guesstimates for 2011 and 2012 are 7.2% and 5.5%, respectively, compared with the official prints of 9.3% and 7.3%.” He continues to explain that “When we say guesstimates, that is exactly what we mean. We have to use official data to question official data; we do not have access to an independent nationwide assessment of service-sector inflation, and it requires a leap of faith to choose the alternative services series we have.”
Green begins by commenting that if there was an index for suspicion about China´s official statistics, it would be off the chart. While the global financial crisis added plenty of statistical smog, the issue with Chinese data is not new but scepticism has to be reasonable deployed as some numbers are better than others and the problems vary across different data sets.
He notes that headline statistics are particularly important. He writes, “The government has very clear annual GDP targets, and these numbers hit newspaper headlines. We believe the GDP numbers, especially the first prints, are possibly subject to smoothing at times of super-fast or unusually slow growth. We have previously explored various proxies to track the industrial and investment cycle (electricity, freight, diesel, and concrete production, for instance).”
Green notes that consumption is trickier to monitor, though he does like “KFC same-store, car and Hong Kong retail sales, to name a few proxies.” Across the board, he notes that the proxies told the same story from Q3-2011 onwards: an economy slowing significantly through to Q3-2012, before those shoots did their green thing in Q4. The official y/y GDP numbers, however, attempt to tell a different story: pretty stable growth. The official q/q numbers suggest that Q3 was actually the strongest quarter in 2012.
Questioning why this is the case, he notes that one e hypothesis is that there is a problem with the GDP deflator, i.e., the number that is used to measure overall inflation and that gets us from nominal to real growth. He cites two studies which conclude that service-sector inflation is underestimated within the GDP deflator. Considering Chinese inflation, he feels that it is not too bad, despite still having some obvious issues however.
Overall, he notes that growth boomed in 1992 with Deng Xiaoping‟s revival of reform, but then slowed sharply with Zhu Rongji‟s retrenchment policies of the mid-1990s. The economy was further weakened by domestic restructuring and the Asian Financial Crisis in 1997-98. Then, with the state-enterprise reforms of the mid-1990s feeding through, China‟s entry into the WTO in 2001, and strong global growth, China‟s economy took off again in 2001, peaking out in 2007.
From that point Green notes that growth has slowed considerably since the height of the stimulus. he writes, “Our guesstimates for the past two years look considerably weaker than the official estimates: our guesstimates for 2011 and 2012 are 7.2% and 5.5%, respectively, compared with the official prints of 9.3% and 7.3%.” He continues to explain that “When we say guesstimates, that is exactly what we mean. We have to use official data to question official data; we do not have access to an independent nationwide assessment of service-sector inflation, and it requires a leap of faith to choose the alternative services series we have.”